Like many industries, COVID-19 has had catastrophic implications for the short-term finances of European football clubs, with the disrupted calendar and matches being played behind closed doors significantly impacting both broadcast and matchday revenues. The combined European football market contracted by 13% in 2019/20 as overall revenues fell by €3.7bn to €25.2bn, the first reduction in revenues for over a decade since the global financial crisis in 2008/09. Financial results from a full season behind closed doors are likely to be even more bleak, with Uefa predicting that in total European football clubs are on course to miss out on roughly €9bn of revenues over the 2019-20 and 2020-21 seasons because of the pandemic.
The start of the 2021-22 season saw the welcome return of football fans to stadia, as the COVID-19 situation across Europe stabilised considerably. The football business industry has evolved after the shocks of the pandemic, with some new trends emerging as football institutions try to recover from such dramatic revenue shortfalls. Private investors have seized on opportunities to buy clubs and negotiate stakes in leagues, cryptocurrency companies have been pouring money into new sports sponsorship deals as they look to continue to expand their investor base and innovative new business opportunities such as NFTs are emerging across the game.
These trends reflect the professionalisation journey football industry has been on over the last decade or so, making significant strides as clubs and leagues have matured into established businesses. To evidence this journey with some data, in the first ever Premier League season in 1992-93 the total revenue made by the 22 clubs in the league was £203m, and by 2018-19 between 20 clubs it had grown to £5.2bn – an increase by almost 2500% (1100% when adjusted for inflation). However, even before the onset of the pandemic there was evidence of weakening cost control and profitability in European football. Whilst 2018-19 saw record levels of revenue generation in English and European football, almost half of the Premier League’s clubs recorded losses, whilst both Serie A and Ligue 1 as a whole recorded operating losses.
Amidst every crisis lies opportunities for positive, long-term change, and this is the case for football as much as any other industry. It presents an opportunity for football clubs to take a step back, review how they were operating and continue to reimagine themselves as modern-day, sustainable organisations. Part of this evolution process is the rise of strategy functions within football clubs, focused on developing the business strategy across the organisation. Strategy departments are being increasingly adopted in England, with most of the ‘big six’ clubs, as well as many of the other established Premier League clubs having a dedicated strategy team. Their importance will has been elevated by the complex issues all football clubs faced amidst the COVID-19 pandemic.
Strategy sets out the direction and scope of an organisation over the medium to long term, and a coherently articulated strategy will help the achievement of organisational objectives. Having a clear strategy and associated objectives is crucial to the recovery and continued growth of football clubs, in aiding decision-making and identifying key priorities across the club.
At a high level, strategy provides value for football clubs in helping them to succeed across football’s flywheel (a concept produced by football intelligence company Twenty First Group), enabling them to achieve two of their prime and closely linked objectives of winning on the pitch and generating the revenue required to operate as a profitable business. Clubs’ strategy functions are particularly able to influence and potentially help create commercial, marketing and fan engagement strategies across the flywheel below.
Increasing commercial revenues is a particularly critical lever in enabling clubs to win on the pitch at the highest level, especially since the introduction of the Premier League’s Profitability and Sustainability rules in 2013 that dictate that clubs' maximum permitted losses are £105m over a rolling three-year period. Therefore, increasing revenues significantly influences the amount that can be invested in talent, and ultimately it is the talent that plays a critical role in winning on the pitch. Having a dedicated business strategy team with part of their remit to focus on driving growth in commercial revenues is one of the biggest areas of value they can provide. It will be interesting to observe Newcastle United’s strategy in this area under new ownership, after Premier League clubs voted through legislation to temporarily ban commercial arrangements that involve pre-existing business relationships in October.
Now, just to be clear, the absence of strategy teams historically does not mean football clubs have not been strategic in the past. Every organisation has a strategy. Strategy is what you do, not what you say you do, and it’s about making choices. Every organisation needs to choose to do some things and not others. It may or may not be a winning strategy, but every organisation will have one. So simply by operating, football clubs are required to make strategic choices. Traditionally, rather than having dedicated strategy teams, football clubs make their strategic choices by aligning around executing a sporting directors’ vision.
However, having a department of dedicated strategists working at a football club elevates the influence of strategy across the organisation. Whilst all football clubs will have a strategy simply because they actively try to compete, defining a strategy through deliberate, integrated strategic choices that can be applied across decision-making in all departments, enabling them to align towards the key objectives of a club is highly valuable. Strategy functions own the development of this strategy, but also drive implementation and work with different departments to ensure they are working together with clarity over the intended direction to deliver on the key objectives that need to be achieved.
A Premier League club that has gone about setting up their strategy team over the last few years opted for a structure that sees dedicated personnel aligned to each of the different main departments at the club, including the commercial sponsorships, marketing and media teams. In this format, the strategists act as business partners of sort to the different departments, enabling the strategy set by the strategy team for the wider football club to trickle down to each of the individual apartments and providing a greater degree of accountability.
Anecdotally I’ve heard an example of a club signing a lucrative sponsorship deal with a software provider, which required the implementation of that software by the finance team as part of the agreement. In practice, this turned into a very disruptive and expensive issue for the finance team. This example highlights how siloed departments within a football club can be and underlines the importance of different departments collaborating in line with a clearly defined strategy. This isn’t an issue unique to the football industry, but as it continues to professionalise, enabling the different business departments to align towards a common strategy is an important step.
It is also becoming increasingly impactful to have dedicated head of strategy to report to that sits on the executive table, as opposed to reporting to the CEO who will always have a wide array of issues to deal with at any one time, who can elevate the importance of strategic alignment with the executive team. The absence of dedicated strategy people across the board comes with some significant key risks: haphazard decision-making, financial overspend, misalignment of objectives and a lack of clarity.
However, we are still some way off strategy teams becoming the norm across the football pyramid. Taking figures from 2018/19 to discount for the impact of COVID-19, there were 15 clubs in Europe with revenues over €320m, with Barcelona generating the most revenue at €840.8m, some way ahead of the second placed team Real Madrid at €757.3m. This is significant revenue, and all indications are that there is room for growth (particularly in commercial). However, when compared to established, multinational sports brands prominent in the football landscape the scale of difference is striking; in 2019 Adidas had revenues of of €21.5bn and New Balance €5.5bn. With a bit more context behind the revenue figures top football clubs is making, it perhaps provides some indication as to why strategy departments are relatively immature today across the football pyramid, as they remain small in comparison with established multinationals with large strategy departments with headcounts into the hundreds.
For clubs outside the top 20 to 30 wealthiest in Europe, justifying the resources required to establish a strategy department is challenging, with one industry expert describing that it ultimately comes down to “ownership having a clear off the pitch vision combined with a willingness to invest in the team”. For the time being, most of these clubs are likely to rely on working with external advisory companies on an ad-hoc basis when in need of support on a specific strategic challenge, rather than investing resources into a full-time in-house strategy team. However, this has not stopped some clubs with relatively smaller resources from embracing the potential impact of strategy and trying to use it to deliver competitive advantage. Toulouse FC, currently plying their trade in Ligue 2 in France, being one such example of a club with dedicated strategists.
How the evolution of strategy teams across the football pyramid plays out over the next few years remains to be seen, but one thing that became very clear over the pandemic is that fans’ appetite for football is extremely resilient, and this has been a driver of many of the trends that have emerged over the last year. Ultimately, it provides the strong foundation required for football clubs to continue accelerating on their professionalisation journey.
Dylan Amin is a Strategy Consultant at a major strategy consulting company.
Uefa: The European Club Footballing Landscape report 2021
Deloitte: Annual Review of Football Finance 2020
Deloitte: Annual Review of Football Finance 2021
Deloitte: Football Money League 2020
Twenty First Group: football’s flywheel
Adidas and New Balance: annual reports