The COVID-19 pandemic has challenged the football ecosystem and increased the financial pressures on clubs and leagues. Even before the crisis, many of them faced a structural economic disadvantage, with investment and financial resources concentrated in a handful of football clubs and just a few leagues. Most clubs have tried to reduce their financial shortfall by generating revenue in commercial areas—for example, sponsorship, match-day revenue, and merchandising. But they have had only limited success.
These commercial efforts are certainly important, but there are also sports-related economic levers, such as managing players under contract and developing younger players. These could significantly reduce the commercial or financing gaps and contribute directly to the principal objective: success on the pitch.
Our analysis identified the key elements of sporting and economic success
We analyzed the value that the 69 most valuable European clubs generated over the past five years and consolidated the findings in our report, “The value pitch: The importance of team value management.” It identifies the most important ways sound club management has led to sporting and economic success within the current competitive structure. Our research showcases how several clubs have created hundreds of millions of euros in value over the past five years. Each has successfully implemented a strategy based on creating a clear competitive advantage by optimizing the market value of the team.
Our analysis was conducted before the COVID-19 outbreak, and player-market values have dropped since then. But the crisis has made it clear that sports-related management decisions still have a critical impact on the overall financial situation of clubs. Single transfers can lock in double-digit shares of a club’s annual revenues, and contracts involving such deals have brought some clubs close to insolvency during the pandemic. Today, it is more important than ever for clubs to avoid managing teams as if they were cost centers that spend revenues generated by commercial activities. Instead, they should view each team as a portfolio of assets that generates value.
Top clubs share several characteristics
Our analysis identified several characteristics that top clubs have in common. Here are the major findings.
Maximizing a team’s market value should be at the core of a club’s management strategy and planning
Almost all stakeholders in the world of professional football, including the principal shareholders of clubs, see success on the pitch, rather than economic returns, as the principal objective. In fact, that is increasingly true even from a purely commercial standpoint: the revenue share resulting directly from sporting performance is rising, while the share that can be influenced by a club’s financial-management decisions is declining.
Today, maximizing a team’s market value is essential for success. This value does correlate closely with success on the pitch but is more manageable, and less exposed to the vagaries of fortune, than winning matches and titles (Exhibit 1). Accordingly, maximizing team value should lie at the heart of a club’s management strategy and planning.
Managing a team’s value is more important than investing in new players
A team’s value can generally be increased in two ways: by managing current players or by investing in new ones. Our analysis of top clubs over the past five years revealed that six different approaches can help clubs achieve the desired increase (Exhibit 2).
Three of the approaches—sustained revenue surplus, investor-led upgrading, and debt financing—allow for high net investments into new players. Most of the 24 clubs, which were able to translate financial advantages into net investment of more than €100 million are from the English Premier League or have received fresh capital from new investors.
The other three important approaches for increasing a team’s value go beyond net investment: developing players under contract, bringing in players from the club’s own youth team, and acquiring players for a transfer fee below market value or selling players above market value. We call this set of three approaches “team value management.”
Looking at the 69 most valuable European clubs over the past five years, we find that for more than 70 percent of them, including Liverpool and Real Madrid, the gains from team value management exceeded the value derived from investing extra money in new players, regardless of the club’s size. In other words, managing players currently on the pitch matters most for creating value.
In our analysis, the total squad value of all clubs increased by around €17.2 billion, or 155 percent, over five years (Exhibit 3). This increase in the value of players reflects football’s growing revenue streams. Among the most important of these are rising domestic and international media and sponsorship revenues. Interestingly, team value management accounted for about €13 billion of the total value increase—on average, some €190 million per club over the past five years.
Overall, almost all clubs (64 out of the 69 we analyzed) generated some value from team value management. The 24 clubs with the highest value increase from team value management generated upward of €200 million each. Division of the total increases between team value management and net investment is highly club specific, however, since it is directly linked to management decisions.
Each of the three team-value-management approaches is significant enough to create a competitive advantage
When managed appropriately, every approach—the development of players under contract, the integration of youth players into the senior team, or excellence in trading players—delivers enough value on its own to generate higher total value systematically. Such increases could allow teams to narrow any gap with the top clubs.
Of the clubs analyzed, fifty have generated more than €100 million by managing the value of their teams and twenty four have generated more than €200 million. By breaking this down, we found that clubs have three possible ways to generate a sustainable competitive advantage in managing the value of teams: more than €500 million in value can be generated from developing players under contract (as Liverpool FC and Tottenham Hotspur did), more than €200 million was achieved by integrating youth players into the first team (AFC Ajax and SL Benfica), and more than €100 million came from the smart trading of players (Borussia Dortmund and SL Benfica).
High performance in managing the value of teams does not require the biggest annual budgets. Many of the best-performing clubs are not among the ten largest as measured by revenues. Some of these clubs, such as AFC Ajax and SL Benfica, do not even play in Europe’s five top leagues.
All clubs should reevaluate their team-value-management performance
While strong examples of team value management do exist, most clubs would benefit by clearly understanding how this route can create a competitive advantage. Analyzing the performance of past team value management should be the starting point. This should be followed by the definition of a competitive advantage and a rigorous long-term focus on implementing team value management. Given the high potential for value creation, clubs should ensure that enough sporting and management expertise is available and can be combined.
In the high-stakes world of professional football, team value management offers the best opportunity to maximize a club’s overall value. It should be an explicit priority for every club.