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Has the lack of fans in football stadiums along with Mediapro’s bankruptcy killed the football industry?
Is the crisis of the football industry structural? One might argue that the football crisis is indeed structural and can be traced back to the transition from a “spectator-subsidy-sponsors-local” (SSSL) model in the 1960s and 1970s, to a “Media-Magnates-Merchandising-Global” model (MMMG) since the 1980s – a period since which TV rights and trading players have gradually become the main features of European football’s economic model
The pandemic has undeniably not helped. Not only have ticket sales collapsed. Mediapro in France - a key operator in the TV rights’ allocation process - has ceased payments. It didn't take much more to spark the powder. Evidently, the European Super League proposal could revitalise football and boost TV rights (given the financial attractiveness of football), but can the industry sustainably rely on the inflation of TV rights to survive? This article argues that one of the solutions is to fundamentally rethink football. In other words, giving birth to tomorrow’s football : football 4.0.
In the SSSL model, the operating revenues were ticketing, subsidies and sponsorships. Revenues were mainly generated by local residents. In the MMMG model, with the arrival of Canal Plus and the end of the ORTF in France for instance, TV rights have become the primary source of revenue. The arrival of merchandising in the 1980s, - derived products and the listing of clubs in Europe (Tottenham on the LSE in 1983) - has largely contributed to the financialization of clubs. This transformation allowed for the first wave of acquisitions by institutional investors to emerge (Lagardère, Aulas, and the media: M6 for the Girondins de Bordeaux, Canal Plus for PSG in France). More recently, in France, sovereign wealth funds have entered the battle (Qatar for PSG) and then oligarchs, Dmitri Rybolovlev for AS Monaco, Waldemar Kita for FC Nantes, Hafiz Mammadov for RC Lens. In an increasingly globalised economy, this new economic model was also further cemented with the European Court of Justice’s 1995 Bosman ruling. This decision put an end to national leagues’ player transfer restrictions by virtue of the principle of the free movement of workers.
For a professional club, the main expenses to account for are : wages (more than 60% in general for a club), the depreciation associated with transfer fees, agents' fees, travel expenses and organising matches.
Last but not least, a soccer club is not a small or medium-sized company like any other. As it deals mainly with players and not with products and services, the budgetary constraint are said to be "loose" (although in France, clubs such as Strasbourg and Grenoble have declared bankruptcy and the DNCG - an independent auditor created by France’s national football association in the 1980’s - maintains surveillance over French clubs’ financial management).
The general rule is that a club can recurrently spend more than its income without being put into bankruptcy. This is one of the explanations for the recurrent deficits of clubs and the endless cycle of indebtedness. Among the repeated offenders: Bordeaux, Lille, Lyon, Marseille and PSG in France. Observers have drawn comparisons’ with government debt. European clubs have notably agreed to abide by specific rules of “financial fair play” which, in theory, limits the clubs’ fiscal deficit to 5 million euros per three year periods.
In 1990-1991 in France, 15% of the revenues of first division clubs were derived from TV rights and derived products. For the 2013-2014 season, 74% (DTV 50%, Derived products 24%), today it is 55% on average (25% for PSG which, as an international club, benefits from a higher share of derived products). For the 2018-2019 season according to the DNCG, the sale of players accounted for 25% of the operating income of 11 League 1 clubs, but operating expenses are still increasing faster. Similarly, the earnings forecasts on player trading are always lower than the actual earnings, with the DNCG also pushing to avoid player trading inflation. At the dawn of the pandemic, the operating revenues of the Ligue 1 clubs were growing by 36% between 2016 and 2019 with 1.9 billion in operating revenues according to the DNCG. We can say that after an immeasurable effort, the clubs were able to see the light at the end of the tunnel. Over the same period, TV rights accounted for 47%, sponsoring for 22%, merchandising for 20%, and match revenues (ticketing) for 11%. As a matter of fact, it appears that the trading of players from one club to another enables clubs to maintain a less catastrophic economic status. Indeed, France also benefits from the quality of its training centres, enabling the country to massively export its young talents. Transfer sales now represent 25% of the clubs' operating income. And it is the TV rights that allow to maintain a quality workforce, hence the vicious circle of the model. Mediapro was a great hope for the sector, at the initiative of the LFP (Ligue de Football Professionnel) but Mediapro, a Chinese-owned Spanish group, was only a broker and not a broadcaster such as the likes of M6, TF1 or others in France. Additionally, we must add the rising challenge of piracy. It should be noted that according to a study by Hadopi, sports television content piracy has increased by 20% to 30% in 2019 compared to 2018. The study moreover estimates that 4 million people watch the content illegally every month. There are even software pirates that provide cable boxes that allow you to see all the sports broadcasting channels for a few dozen euros per year.
As for expenses, salaries represented 61% of expenses (excluding player purchases) in the 1990-1991 season, 66% in 2012-2013 and 70% as of today. One of the peculiarities of this model is that losses are always higher than expected and the abysmal debt is composed mainly of payment arrears (suppliers, salaries, taxes and social contributions).
Sociological aspects are key to explaining football’s business model:
Before the pandemic, watching live sports was almost an exception, and all major global franchises were down. The world is changing too: 300 million people worldwide watch Netflix at least 1H per day. This rises to 2H per day when considering time spent on social networks. This number is also much higher for young people. Overall, the number of online fans has enormously increased. Finally, if one wishes to watch only one match - this often occurs when the national team plays -, it is very unlikely that the person will want to get a TV or an online subscription, or even to pay for one game. This makes it difficult for the industry since advertising and subscriptions are critical to the survival of football.
The Covid-19 pandemic has accelerated the transformation of French football, but the latter’s situation was first and foremost aggravated by Mediapro going bankrupt - French football’s main TV broadcaster. For the record, Mediapro won the majority of TV broadcasting rights of the Ligue 1 for 820 million Euros in May 2018 but went bankrupt in October 2020 at the height of the health crisis. In the wake of this, the pay TV channel Telefoot also filed for bankruptcy. In France, although the presence of Orange, Canal Plus, M6, TF1 helped at least temporarily solve the issue of TV rights, the operating losses of French clubs remained abysmal for the 2020-2021 season: over a billion Euros according to the DNCG. As for piracy, the pandemic led to a dramatic increase of online football matches streaming. Streaming most likely exploded during the pandemic as stadiums were shut and spectators more likely to watch a game on an illegal streaming platform. The cancellation of major international events further damaged the industry as sponsors gradually stopped supporting teams and players. Altogether, it can be said that the Covid-19 pandemic along with the key issue of TV rights have led to the worst period in the history of football. Today, experts value the broadcasting rights at 1.2 billion, knowing that Bein sports and Amazon pay half that amount. Faced with these different unavoidable realities of the model, how can we rethink football while anticipating tomorrow's world? We’ve understood that the problem is structural in many areas and that the Covid-19 crisis has only accelerated the already existing issues. That’s why a new regulation for football adapted to the era of modern technology seems to be the way to go. First we’ll need to rethink the way we will offer football’s rights of tomorrow all the while encouraging football leagues to use the right technology to fully reach the potential gains.
Several solutions are already available today: from an economic perspective, the state-guaranteed loans (PGEs) requested by the football league are a first solution. Employers’ social security contributions could also be temporarily exempted!
In terms of management, a drastic decrease of the wage bill is undoubtedly necessary; but other objectives and ideas should also be formulated. Generally, the following objectives are mapped out with the idea of increasing profits and improving the football league’s image: encourage clubs and L1 and L2 (first and second division of the French Football League) to follow successful management practises applied in different European championships; renovate stadiums (German model); use new facilities in a rational and profitable (e.g. naming policy), wider ticket price segmentation based on a detailed analysis of consumers; yield management and development of merchandising, technology transfers and association contracts with emerging clubs, competition between TV operators, moderation of tax bludgeoning and return to the collective image right, capping of salaries/cash flow and, possibly, distribution of revenues (rewarding breeding clubs by hunting clubs). The offensive bonus point system is also often mentioned (it helps create a more offensive and entertaining style of football). Other ideas include reducing the number of teams in the Ligue 1 (in France), as well as making it tougher for Ligue 2 to enter the Ligue 1, to buttress a more competitive and higher-skilled Ligue 1. Lastly, communication and education programs must be strengthened to improve football’s image. All these proposals aim to improve the profitability of the market and the clubs, by considering football as an industry with real economic, budgetary and commercial rules. They are based on the expertise of many leading economic analysts of European football.
To conclude and provide the reader with perspectives of tomorrow’s football, we need to turn towards innovation: a new digital offer on the internet - like RMC Sport in France, Amazon, Dazn, and Discovery - appears to be a likely outcome. Yet, one might ask what interests Amazon has with smaller clubs ? PSG might sell in China, but other ESTAC, Angers or Lens (which remain elite clubs) are much less likely to sell in China. We must not forget that football is first and foremost about TV rights and subscriptions but certainly not about advertising! That’s why the football revolution will have to be nurtured from inside innovations. And there certainly are disruptive innovations that will be able to contribute to the modernisation of the Football industry.
First of all, the innovative stadium: the innovative stadium would attract more spectators, the design and the creativity, not to say their beauty, would attract more spectators. The French football industry could definitely benefit from such an innovation. French stadiums are much less attractive than stadiums in England or in Germany.
Other ideas must be developed. If player trading is so important, why not imagine technologies that improve recruitment processes. "Stats Platform”, for example, is the leader in data applied to artificial intelligence for sports. OGC Nice has signed an agreement with this start-up. It is a player screening solution but also a recruitment solution for each of the club's key positions. Better player recruitment and improved club management are key to optimising transfers and recruitments.
Marketing and data science must also be part of the process. Data science allows to improve the club’s knowledge and to adapt its customer offer; this ideal principle in the club’s digital transformation will allow for the improvement of the user’s experience but also for the club to better identify its customers-spectators with strong potential thanks to clustering, to predictive modelling or factorial analysis.
Some soccer clubs like Liverpool FC collaborate with the French start-up "Skill corner" and use powerful tools able to collect real-time data on video matches or training sessions. Player tracking, ball tracking, and tracking with the identification of abnormally high possession, or a frequent ball loss area allow to optimise teams and tactics and therefore ultimately performance.
Glasgow Rangers is now working with the American platform Hudl. The idea is to improve the knowledge of its team and its opponent with the help of a very fine analysis of all the matches with selections of game phases.
Real Madrid and the FFF use many connected objects such as connected sportswear or wearable devices. This technology can be placed in the player’s back pocket or on his jersey. Manchester United and Juventus of Turin, have worked with "Catapult Sport" to develop their performance analytics capabilities.
For television and TV rights several elements can be added. It is necessary to influence the way the public watches sports, to be able to have statistics in real time, to access them, to share them. Some channels like Canal Plus are very innovative in terms of broadcasting and are already using new calculation devices to enrich viewer experience. Other media like TF1 use the English company "Opta Sports”.
To increase loyalty, one could resort to sports betting companies: "Winamax", for instance, has partnered with "Skill Corner" to benefit from a tool that produces real-time key information on the match - customers are likely to react positively to this type of partnership.
For the French league, the lack of tracking data sharing is a real problem for anyone engaging in research or data collection. What seems inevitable is the revolution that will have to be led within organizations to understand and work with AI. This will require organisations to develop their skills in the field of data sciences.
Pascal de Lima (PhD economics - Sciences Po) is Chief economist of CGI Business Consulting and guest speaker in several schools and conferences. He is a French economist and knowledge manager (KM). He applies his knowledge of economics to the field of KM to solve management consulting challenges. He lectured economics at Sciences Po in Paris and has also taught economics in several of France's top universities (HEC, ESSEC, Sup de Co, Engineering Schools and PREPA...) for a total of 18 years. As an essayist, he wrote more than 200 Op-Eds for major media outlets in France, 10 books and 5 referenced academic articles. He regularly gives lectures at international economics conferences. He specializes in economic foresight. His work is centered around monitoring and prospective thinking with primary focus on the assessment of the economic, social and environmental impact of innovations. After 14 years in the field of management consulting for the financial and banking sector (Ernst & Young, Cap Gemini, Chief Economist & KM at Arthur D.Little and Altran), he founded Economic Cell in 2013, an idea laboratory and consultancy whose purpose is to study market evolutions in light of economic transformations brought about by innovation. In 2017, he joined Harwell Management as Chief Economist, and in 2020, has become a teacher at Aivancity. He holds a PhD degree in Economics from the Paris Institute of Political Studies (Sciences Po), a Masters in Industrial Economics from Panthéon-Sorbonne Paris 1 and a Masters in Financial engineering from a top French business school.
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