December 8, London: Breakingviews from Reuters Soccer may be nearing its financial demise. After years of excessive expenditure, European giants such as Erling Haaland's Manchester City and Jude Bellingham's Real Madrid may suddenly face heightened regulatory scrutiny and stagnate TV-rights earnings.
Either the teams need to tighten up on player salary and movement policies, or they need to get better at generating cash from their varied fan bases. In the last 10 or so years, European soccer costs have skyrocketed.
For example, English Premier League clubs spent 2.4 billion pounds, or $3 billion, on players in the summer of 2023. Based on Deloitte data, that almost quadruples the same amount from 2013. Meanwhile, pay soared.
Newcastle United, a Saudi Arabian-owned team featuring talents like Bruno Guimarães, paid salaries totaling 95% of revenue in the fiscal year that concluded in June 2022. There may be a leaner time ahead. The growth in television deal revenue has slowed in Europe.
Telecoms and pay-TV companies, who used to fight tooth and nail for the rights to screen games, have put an end to the auctions' ever-rising expenses. But massive streaming companies like Amazon.com (AMZN.O) haven't fully filled the void yet.
As part of the Premier League's most recent TV-rights package, which was presented in early December and is worth 6.7 billion pounds over four years, the value of the live rights climbed by just 4% compared to the previous round, significantly below the rate of inflation.
Global TV revenue is still rising. But lately, prominent clubs' top lines have slowed progress, partly because of the pandemic. The total revenues of Manchester United (MANU.N), Real Madrid of Spain, Bayern Munich of Germany, and Manchester City of England climbed at a compound annual rate of 10% between 2010 and 2019. From 2019, the yearly growth rate dropped to 4%.
Additionally, efforts by the football authorities to enforce fiscal restraint are finally becoming more serious. The Union of European Football Associations, which regulates the sport in Europe, is introducing a cost cap for the first time this season. Generally speaking, the new rules forbid clubs from allocating more than 90% of their total income and player-trading earnings to player transfers, agent fees, and salary.
That maximum ratio will decrease to 80% the next season and to 70% the year after that. The average percentage for 20 of the biggest clubs in Europe in 2021 was 86%, according to an estimate by Consultancy Football Benchmark, showing that many teams were far from complying with the future, tougher rules.