Volume 1, Chapter 2
The profitability of sports teams:
international perspectives
1
2
Profits in north America vs Europe
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Teams in North America do NOT want to
appear too profitable
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Antitrust suits
Teams in Europe fortunate if they make any
profit
In English Premier League 1993-2004,
correlation coefficients
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Team salary and team revenues: 0.927
Team revenues and team operating profits: 0.347
Increase in team revenues go to team salary
3
Profits in north America vs Europe
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Difference in club objectives
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Different incentives
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NA: closed league structure
Europe: promotion/relegation
Regulation of player labor markets
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NA: toward profits
Europe: not-for-profit organizations
NA: close regulation
Europe: lack of control
Support from local authorities
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NA: subsidize sports stadia
Europe: subsidize team’s wage bill, e.g. Real Madrid and
Barcelona in Spain
4
Official numbers
less than estimated
by Forbes:
1. Cross-subsidizing
other parts of their
groups
2. Transferring costs
from parent
companies to teams
5
6
7
Financial crisis in English soccer
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Premier League: 20 teams
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72 in other 3 divisions (English Football League)
Widening disparities of revenue growth by division
Tendency for revenue growth
Growth of wage bill
Lack of profitability in lower divisions
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Very few clubs folded due to financial deficits (last in
1962)
Teams in debt were sold to new owners at low prices but
agree to take on the debt
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9
10
11
12
13
Financial crisis in European Football
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Football began economic boom in 1990s
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4-year TV contract to BskyB L647M in 1997, L1.6B to
BskyB in 2002 by Premier League
Only very few teams benefit
Many teams in financial crisis
ITV Digital TV signed L315M with English
Football League (bottom 3 divisions, 72 teams) in
2000
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Pay-per-view in Great Britain
ITV bankrupt in 2002, court ruled ITV not responsible
for remaining ~L200M
TV ratings remarkably low (few thousands viewers)
14
Financial crisis in English soccer
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Largest debts for teams in Championship League
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Teams aim for PL
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The tier just below Premier League, average attendance
~17000 in 2010-11
Clubs already spent the money on debts, buying new
players, ground improvement
Compete for players of moderate quality
Higher revenue from TV, gates, sponsorship,
merchandise,…
Parachute payments: demoted teams receive a share of
PL broadcast income for 2 seasons following relegation
Market size fundamental determinant of league
standings
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Despite promotion/relegation
15
Lessons learned

Player contracts shorter in length, more
performance based
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Automatically lower salary after relegation
Points deduction to deter clubs from entering
administration (bankrupt)
Revenue in Top Division of
European Soccer Teams 2011/12
Deloitte Annual Review of Football Finance, 2013
16
Total Wages and Ratio to Revenue
in Top Division
Deloitte Annual Review of Football Finance, 2013
17
Average Match Attendance in Top
Division
Deloitte Annual Review of Football Finance, 2013
18
Attendance and Sources of Revenue
in Premier League
Deloitte Annual Review of Football Finance, 2013
19
TV Revenue Sharing in European Soccer
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Premier League only shared within the league
Italy’s Serie A teams do not share broadcast
revenue with each other
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Juventus, AC Milan revenue 10X of other teams
Many teams keep financially afloat by developing
talented young players and then selling their rights
to wealthier teams
Financial Danger of Open System
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2007/08- 2011/12 only the Bundesliga
(€190m) and Premier League (€121m) were
the only ‘big five’ leagues to generate an
operating profit

before player trading and finance costs
Large Differences in Revenue and
Market Values in European Soccer
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Manchester United, Real Madrid, AC Milan
have operating income and market values
similar to Washington Redskins and NY
Yankees
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900-1300 M in market value
Sales of brand-name soccer merchandise > 3 B
NFL 2.5B, MLB 2.3B, NASCAR 1.2B, NBA 1B,
NHL 900M, in 2001
Value of FC Porto of Portugal, 25th valuable
soccer team in world: market value 106 M
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Similar to least valuable NHL teams
Market for broadcast rights
North America vs Europe
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NA: networks + cable + satellite + internet…
Europe: a single company by sealed-bid auction
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BSkyB (Sky Sports) in England
Now BSkyB + ESPN
BSkyB: use sports broadcasting to increase
customer subscription package
Several European broadcasters merged or bankrupt
 greater concentration of sports provision among
fewer remaining companies
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Italian Serie A and Serie B to create league channel in
2013, more competition for broadcaster
24
Market for broadcast rights
North America vs Europe
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TV revenues not equally shared in Europe
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In PL: equally fixed share, fee for each live broadcast,
prize money based on standings
Big clubs (MU, Chelsea…) receive much greater
broadcast revenues than smaller clubs
Individual vs collective selling of broadcasting
rights, arguments:
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Individual would raise profits for individual clubs
because more games should be shown
Collective would raise total league profits and effective
distribution
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20% increase in broadcasting fees in 2010-11 in Italian Serie A
after collective selling
25
Market for players
North America vs Europe
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NA: player unions, but more regulated
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Europe: player unions may only influence pension
plans and insurance for injury
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Entry draft, restrictions on FA
No entry draft, FA for all players after contract
Trade players for cash, rather than for players/draft picks
Incentives to overpay players in
promotion/relegation system
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Playoff systems that give mid-table teams chance of
promotion
4th place in PL qualify for UEFA Champion’s League
26
Market for players
North America vs Europe
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Teams spend their surpluses from ordinary
players on superstars who extract all
available rents
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Big clubs, the only ones who can afford
superstars, make less profits by high payments to
superstarts
Hidden monopsony rent, suited for Barcelona,
Real Madrid, Inter Milan…
27
28
Conclusions
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Team profits
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Revenue opportunities, especially concessions,
merchandise, sponsorship
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NA: team revenues convert into team profitability
Europe: this connection not exist
Not maximized in Europe
Greater commercial expertise gradually being introduced
into Europe
Costs
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High growth of player salaries in Europe
Leagues should reinforce their attempts to construct
offsetting incentives
Penalties for overspending? Salary cap?