The European Super League: Greed or Business Sustainability


European Super League

In recent weeks, the football community and numerous governments officials came together to reject the planned European Super League (ESL). The UK Prime Minister, Boris Johnson likened the European Super League to a cartel, and said the government will do all it can to prevent it from going forward. To sum up the united stance against the planned European Super League, the governing body for football in Europe, UEFA, issued the following statements saying:


"UEFA, the English Football Association and the Premier League, the Royal Spanish Football Federation (RFEF) and LaLiga, and the Italian Football Federation (FIGC) and Lega Serie A have learned that a few English, Spanish and Italian clubs may be planning to announce their creation of a closed, so-called Super League.
"If this were to happen, we wish to reiterate that we – UEFA, the English FA, RFEF, FIGC, the Premier League, LaLiga, Lega Serie A, but also FIFA and all our member associations - will remain united in our efforts to stop this cynical project, a project that is founded on the self-interest of a few clubs at a time when society needs solidarity more than ever.
"We will consider all measures available to us, at all levels, both judicial and sporting in order to prevent this happening. Football is based on open competitions and sporting merit; it cannot be any other way.
"As previously announced by FIFA and the six Federations, the clubs concerned will be banned from playing in any other competition at domestic, European or world level, and their players could be denied the opportunity to represent their national teams."

Football fans globally, wore shirts donning the slogan "Football is for us". Owners of some of the respective football clubs that had agreed to participate in the European Super League, issued apologies to their fans who accused them of killing football, and being greedy. Some football clubs like Real Madrid FC and Barcelona FC still haven't expressed any desire to withdraw from the European Super League, and believe it can still go forward.


If the European Super League would have gone ahead, it would have started at the same time as domestic leagues in Europe. According the European Super League's website, the proposed competition would have been between 20 top clubs. It would have comprised of 15 founders and 5 annual qualifiers.


This articles looks at the other side of the story, when all the noise comes down and people have a clear head to be objective in their thought process.


Football is entertainment to fans but it is business to club owners. More specifically, it is investment, one they expect returns on. Let's say Pepsi is your favourite drink. When you buy a bottle of Pepsi, do you think about how much money was invested into producing that drink? I am guessing the answer is no.

A football club can be likened to a bottle of Pepsi, and the person who loves drinking Pepsi can be likened to a football fan. Football fans don't get to see how club owners adapt their business models to ensure a football club remains a sustainable business, and delivers value. Football fans are focused on watching their club play and compete. They love the drama and the entertainment associated with supporting a football club, even if the football club isn't winning. On the other hand, football fans won't bother themselves with how a club generates revenue, or if they register a profit or loss at the end of a financial period.


The Business Case for European Super League

The COVID 19 pandemic severely impacted the football industry with majority of football clubs in EU registering a financial loss at the end of 2019/2020.

For example, Liverpool FC posted a Turnover of £489,860,000 in 2020, and £533,022,000 in 2019. But they also posted Administrative expenses of £496,872,000 in 2020, and £484,409,000 in 2019. In plain English, Liverpool FC posted an operating loss of £70,245,000 in 2020, and an operating profit of £572,000 in 2019. While Administrative expenses increased by 3% between 2019 and 2020, their revenue generated decreased by 8% between 2019 and 2020.

This is a financial trend you will find across most football clubs in Europe. The table below highlights the financial impact COVID 19 had on five top football clubs in Europe. All of these clubs initially agreed to participate in the European Super League, and you can see why. Real Madrid was the only football club, out of these five, to post any profit in 2019/2020. To be clear, Real Madrid didn’t make millions in net profit, it only made £272,000. Man City was hit the most, registering a loss of £126,014,000 in the 2019/2020 financial period.


Profit and Loss Premier League Clubs

All these football clubs incurred losses in millions of pounds. Any normal business losing millions in pounds will try to adapt and change their business model to survive. We are in a pandemic, it is clear the European Super League was an endeavour by club owners to protect their investment. By protecting their investment they are protecting the football club.


So how sustainable is an investment in a football club, and how much flexibility does a club‘s ownership have, when modifying their business model to deliver value, both for owner and fan alike? With the massive backlash from football fans about the European Super League, one can safely assume that club owners now know, there is a limit to which they can modify their business model to remain financially sustainable, without incurring the wrath of football fans. The success of a football club no matter its business model, will always be based on keeping the football fans happy, as they are the end users. Lets explore the different element of what drives success in a football club.


Success Pyramid for Football Clubs

Football has been so successful because of the passion and support of its fans, and the rivalry created through the competition. Our researched highlighted that a football club's fan base, their return on club owner's investment, and the amount of trophies won, all play a part in judging how successful a football club is.


These three requirements for judging a football club’s success, do not operate in silos. In short, they operate as a pyramid, with the fan base acting as its foundation.


Success Pyramid

Fan Base

When a club's fan base is unhappy, it could impact their revenue. The fans bring in revenue by purchasing club season tickets and merchandise. Fans are also one of the main reasons why football clubs attract sponsors. It is a no brainer, if you want your football club to be successful, you have to keep your fan base happy, and build on it. This explains why owners of football clubs such as Liverpool, Manchester United and Manchester City were quick to apologise to fans about joining the European Super League.


Return on investment

Hate them or love them, the owners of a football club, enable the club's success. They invest millions of dollars into these football clubs, at their own risk, and are responsible for ensuring the club remains financially sustainable. If the owners of football clubs don’t get a return on their investment, it impacts the club‘s performance negatively. Without a return on investment, club owners can't reinvest profit into the football club. They end up selling their best players to either cover operating expenses or to get a return on investment. This ultimately impacts the clubs performance. The clubs that joined the European Super League clearly did so to protect their return on investment, which had been significantly impacted by the COVID 19 pandemic.


Trophies

Looking at the pyramid above, one might wrongly assume that trophies are least important when it comes to a football club’s success. You would be absolutely wrong.


Football clubs are like any other business. Businesses come in all sizes and so do football clubs. For example, it would be a business folly to treat Liverpool FC the same way you will treat Swansea FC. Liverpool FC's asset base is larger than that of Swansea FC, as such, their operating expenditure will be way larger, comprising of higher player wage bills and overhead costs.


In reality, the success pyramid of a big club like Manchester United would look much different to that of a smaller club like Crystal Palace FC, as shown in the diagrams below. The diagrams below show, a bigger focus is given to trophies by bigger football clubs when compared to smaller football clubs. Big football clubs are called big, because of the trophies they wins and the size of its fan base.

Success Pyramids

Football Pundits and Fans calling for club owners to leave

Man City, Chelsea and Liverpool FC have all enjoyed the benefits of having a new club owner infused billions of dollars into these clubs. Without argument, you can clearly point to the return on investment, both in trophies won and revenue generated. So it comes as a surprise that football pundits and fans are asking for these club owners to leave because they agreed to participate in the European Super League. Jamie Carragher, a former Liverpool defender summed it up on his Skysport’s column when he said:

“There’s nothing left for Liverpool’s owners in what they’re doing and what they’re hanging on for. I actually think the situation with Liverpool’s owners right now is I don’t see how they will continue.
"They can’t just leave the club, because it’s a business, it’s worth a lot of money, but I don’t see a future of FSG at Liverpool anymore. You just think it will be worse for them the longer they hang in.

These were the words of a well respected Skysports pundit. Jamie Carragher is great at his job but he is no business expert nor are the fans clamouring for their club owners to sell and leave. Were the owners of these clubs really wrong in wanting to reduce the risk associated with their investment? Or were they wrong to protect their return on investment? When answering these questions, look at it from a business perspective not as a football fan. Objectively speaking, the approach taken by the European Super League was greedy and wrong, but the business case was justified. Football as a whole needs to adapt its business model to mitigate the impact of the COVID 19 Pandemic on revenue generated.

A unified approach would have worked

What the European Super League should have done was to cut FIFA and UEFA into a piece of the pie, in terms of revenue generated. Even in football, there is the godfather mentality, and the European Super League need to kiss the rings of FIFA and UEFA, to have any chance of succeeding.

The European Super League should also have engaged with the Football Associations to assure them of how the competition would benefit them and the football clubs not participating in the competition. That takes us to the question of too much football. Football pundits such as Jamie Carragher and Gary Neville have pointed out that there is the risk, football clubs participating in the European Super League would stop prioritising their domestic league. Football clubs are required to finish in certain positions at the end of a season, to both stay in their domestic league, and play in the UEFA Champions league. In the Premier League, clubs need to finish in a top four position to play in the UEFA Champions league.


This has posed a big problem for clubs such as Manchester United, Arsenal and Spurs. Football clubs can earn more than $100 million in prize money, when they participate in the Champions league. So it is a big source of revenue for all the big clubs in Europe. The European Super League on the other hand, guarantees these so called big clubs, a permanent place in their competition.


The pros are clear, these clubs get a guaranteed source of revenue, whether they finish top four in their domestic league, or not. The cons however, is that it may promote a lack of competition in the domestic football league. So how do you balance the benefits of financial sustainability against the risks of devaluing competitive football? You cooperative and you compromise.

Recommendations

Below are a few recommendations if the European Super League is ever going to proceed in the future:

  1. Clubs participating in the European Super League can definitely not participate in domestic cup competitions, because that will be too much football and they will field weakened teams, which will devalue the competition. Depending on how you look at it, this is more of an advantage than disadvantage. For example, when was the last time a team outside the top six in the Premier League, won the FA Cup or League Cup? Its been decades. If the big six are all out of domestic cup competitions, it gives other clubs the opportunity to win these competitions. But the Football association will lose ticket revenue generated from the fans of these big clubs;

  2. Clubs participating in the European Super League have to agree that they won't deprioritize their domestic league by fielding youth instead of their first teams;

  3. The European Super League shouldn't be seen as an alternative to the UEFA's Champions league competition. It should be a standalone competition on its own created to deliver financial sustainability to European football during this COVID 19 pandemic;

  4. The European Super League needs to work with FIFA, UEFA and Football Associations if they are ever going to proceed. None of these parties want their competitions to be devalued by a new competition, nor do they want to lose revenue. Any proposal from the European Super League has to take these two factors into consideration.


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