Abstract The football industry is a good study in the basics of finance. The economics of the football industry, and the financial statements of football clubs, are fairly simple. But football is a famously difficult business to make money in – the value is mostly captured by the employees. In 2000 Arsenal Football Club faced a strategic challenge. Its legendary Highbury Stadium was too small for one of the world's top 10 football clubs. But the cost of replacing it was potentially onerous and would leave Arsenal little to spend on players for a few seasons, posing an equal threat to Arsenal's survival. The case examines how this choice between people and infrastructure affected financial performance.
This case was prepared by Professor Chris Higson with assistance from Julie Conder. The case study was prepared in 2008 from publicly available information, and revised in 2009, as a basis for class discussion rather than to illustrate either the effective or ineffective handling of an administrative situation.
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London Business School reference CS 08-009
Football's financial model In financial terms, a big football club is a straightforward business. You need a stadium in which to play, and a training ground. You need a squad of perhaps fifty players and a few hundred other people to coach and manage the team, care for the ground and run the business. Your revenue has three legs: matchday revenues, broadcasting revenues, and commercialization. ‘Matchday’ revenues, principally ticket sales and hospitality, are the traditional source of any sports club’s income. The big football clubs also now share in the proceeds from the global broadcasting rights. They also use this media profile to build a global brand and to profit from selling replica shirts and other merchandise. Exhibit 1 reports the 2008 revenues of the world's ten biggest clubs; the data are taken from accounting-firm Deloitte’s annual football survey. In 2008, these clubs had revenues in the range €170m to €370m, with Real Madrid at the front of the pack by some margin, and Arsenal in sixth place.
Exhibit 1 The largest clubs in 2008, in terms of revenue (figures in €m)
Revenue Attendance 2007/08 Average Capacity Capacity 2007/8 Used % Real Madrid Manchester United FC Barcelona Bayern Munich Chelsea Arsenal Liverpool AC Milan AS Roma Internazionale 366 325 309 295 269 264 211 210 175 173 76,200 75,700 67,300 69,000 41,400 60,100 43,500 55,900 36,200 51,400 80,000 76,200 98,800 69,000 41,800 60,400 45,400 80,100 72,700 80,100 95% 99% 68% 100% 99% 100% 96% 70% 50% 64%
Note: English club revenues for each year have been converted from sterling to euros using the exchange rate as at 30 June 2008. Sterling had depreciated by 15% against the euro over the previous 12 months – converted at the June 2007 rate, Manchester United would have been the biggest club, with revenues of €382. Source: Deloitte 2009 Football Money League
Although the financial model of big-club football may be simple, what is far from straightforward is making a good return for investors. The ‘economic rent’ to football tends to be captured by the players. While the big football clubs have seen big increases in all three sources of revenue in recent years, a lot of this finished up in the pockets of the players, whose salaries increased by 65% between 2000 and 2005 according to Deloitte. Top football stars may be paid €5m to €10m a year. These people possess unique talents; they are immensely valuable ‘intangible assets’ to the clubs they play for and there is intense international competition for their services. What is harder to explain is the income...