Why do billionaires buy soccer teams? Not for profit

The global economy may be slowing, nowhere more so than in Europe, but the revenues of the world’s 20 richest soccer clubs — all of them European — soared by 14 percent over the past year. Despite the billions of dollars in turnover, soccer is hardly a successful business.

The global accounting firm Deloitte on Wednesday published its annual Football Money League, ranking the world’s 20 richest clubs by revenue.

European and World club champions Real Madrid once again topped the money league, with over half a billion dollars in earnings, and Manchester United, Barcelona and Bayern Munich followed close behind. To put some perspective on the riches at play in the world’s game: The combined turnover of those 20 clubs is less than $7 billion — equivalent to about one-fifth of Deloitte’s earnings. In fact, the annual revenue of the global accounting firm is greater than the combined earnings of the world’s five most lucrative football leagues, let alone the top 20 clubs. 

Arsenal, in the eighth spot with an annual income of just over $400 million, might seem like a big earner, but that revenue puts it on a par with a small to medium-size engineering firm rather than a member of the Fortune 500. By the time you get down to Everton, in 20th place with annual revenue of $160 million, we are closer to the amount earned by a really big Walmart store. 

But most football clubs, big or small, are not run as conventional businesses. Deloitte has carefully calculated the clubs’ revenue streams and noted their Twitter followers, but there is no mention of their costs, profit and loss accounts or levels of debt. And what those omissions evade is that few of the world’s top 20 soccer franchises are making any profits and those that do — like Manchester United — make very small profits. Most of these top teams, like the leagues in which they operate, operate at a loss and have done so for some time. Some of them carry immense levels of debt: Deloitte put Manchester United’s earnings at $589 million, for example, but the club reportedly carries $527 million in debt.

So beyond the trivialities of a soccer rich list, what kind of economy is revealed by the money league? 

First, elite soccer is an example of a global economic sector in which the immense rewards of massively expanded digital markets are reaped by a few winners, at some cost to the losers. This is because the main factor driving everyone’s earnings is the increasing value of TV and media deals, and those are increasing despite global economic gloom because in the new economy, live football remains one of the very few things people are prepared to pay for. 

Second, while domestic TV income continues to rise, the growth of international sales has been decisive in boosting revenues. Domestic economic sluggishness has been compensated for by growth elsewhere. Top-level European football is close to recession-proof. But the appeal of the European elite game to global fans drains money and audiences from local leagues that cannot compete. No club from Latin America, Russia or the Netherlands, for example, can break into the top ranks; France and Turkey have just one representative each. Africa's and Asia’s domestic leagues operate in an environment in which most of the public can and does choose to watch Manchester City or Atletico Madrid instead. (And of course, African audiences are well aware that the cream of their continent’s football talent is playing in the ranks of those top European teams.)

Third, inequality among national football leagues is reproduced within them: In Spain and Italy, TV rights have been sold individually by the richest clubs, allowing them to take the lion’s share of the revenues. That’s great for Barcelona or Juventus but disastrous for the teams in the bottom half of their leagues. Consequently, only three Spanish and five Italian teams made the top 20. In all countries, only a handful of teams qualify to play in the lucrative UEFA Champions League. By contrast, the English Premier League, which sells its rights collectively and distributes TV money more equitably, has eight teams in the top 20 spots and 15 in the top 30. That revenue sharing allows more teams to buy quality players, which may also make the Premiership more competitive than other leagues — and that, in turn, raises its value as a TV spectacle.

Fourth, while elite football clubs are good at driving up revenue, they are useless at controlling costs. In the Premiership, for example, the share of revenue that goes to paying players’ wages has risen from 44 percent in the 1990s to over 75 percent today; the other big leagues are no better. Thus the vast majority of clubs regularly lose money, which compounds their debt problem. The relentless competitiveness and unwarranted optimism of the boards of directors often drive clubs to risk the bottom line on a new striker or a refashioned midfield, in a market unconstrained by the salary caps that limit costs in the NBA or NFL. The UEFA has adopted financial fair play regulations requiring that clubs break even and limit debt (preventing vanity investors from dominating the game by simply pouring in billions of euros without prospect of return). But even if properly implemented — which is a big if — those regulations will not make these institutions profitable

What the Deloitte report really demonstrates is that football clubs are just not about making money. If they were, there would be at least a modicum of support for salary controls, but there isn’t. Unlike other economic sectors, most owners are out not to maximize profit but to maximize utility — with utility measured in the quality of soccer served up and the benefits in media coverage, social status and networking that accrue. There are rare exceptions, like the Glazers at Manchester United, and some investors may buy soccer clubs in the hope that they can sell them later to a vanity investor at a substantial profit. But the royal houses of Abu Dhabi and Qatar bought Manchester City and Paris Saint-German not as a rational business investments but as instruments of soft power. 

It is this above all that renders Deloitte’s accounting exercise of very limited use. What’s really required is an anthropological survey of the motivations and meanings of the global superrich and why, of all the options open to them, they seek to acquire status and influence through the medium of a ball game.