Commentary | Soccer will inch towards financial rationality

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Soccer’s financial free-for-all may be ending. After years of lavish spending, European giants like Erling Haaland’s Manchester City and Jude Bellingham’s Real Madrid now face the prospect of stagnant TV-rights income and closer regulatory scrutiny. The clubs must either do a much better job at wringing cash from their far-flung fanbases, or finally clamp down on player transfers and salaries.

The past decade or so in European soccer was characterised by ever-spiralling costs. Clubs in England’s Premier League, for example, spent $3 billion buying players in the summer of 2023.

That’s almost quadruple the equivalent figure from 2013, according to Deloitte’s numbers. Salaries soared too. The wage bill at Saudi Arabia-owned Newcastle United, whose stars include Bruno Guimarães, was equivalent to 95% of revenue in the financial year to June 2022.

Leaner times may be ahead. The growth in broadcast-deal income has slowed in Europe.

Telecoms and pay-TV groups, who used to fight tooth and nail for the rights to screen games, have put a stop to ever-spiralling auction prices, and streaming giants like Amazon.com haven’t fully picked up the slack.

The Premier League’s latest TV-rights package, announced in early December and worth 6.7 billion pounds over four years, saw live rights value grow just 4% compared to the previous process, far below the rate of inflation.

Globally, TV money is still rising. But big clubs’ top lines have nonetheless slowed in recent years, partly because of the pandemic. The aggregate revenues of Manchester City, Manchester United, Germany’s Bayern Munich and Spain’s Real Madrid rose at a 10% compound annual rate between 2010 and 2019. Since 2019, the annual growth has dipped to 4%.

And football authorities are finally getting serious in their attempts to enforce financial discipline. The Union of European Football Associations, which runs the sport in Europe, is for the first time imposing a cost cap in the current sporting season.

Its new rules roughly state that clubs’ spending on player transfers, wages and fees for intermediaries like agents cannot exceed 90% of the sum of total revenue and player-trading profits. That maximum ratio will fall to 80% next season and 70% the year after that.

Consultancy Football Benchmark calculated that the average percentage for 20 of Europe’s biggest clubs was 86% in 2021, suggesting that many teams were miles away from complying with the future harsher rules.

To get sporting costs below the 70% threshold by 2025, big-spending clubs will have to change their ways now. That’s because major player contracts typically span several years, as do amortisation charges for transfer fees.

One option is to keep costs the same but boost the top line. European soccer executives often bemoan the fact that they have millions of fans in Asia, North America and elsewhere but no obvious way to get money out of them. Fixing that would help, but may take a while.

That means many clubs will have to turn to cuts instead. Letting more expensive older players leave, potentially to the big-spending Saudi league, could help. So would using more local talent, rather than signing pricey foreign stars. However they do it, the end result will have to be the same: a more defensive financial performance from Europe’s top soccer teams.