COVID-19 And The Economics of Football
The world of football is a dynamic and ever evolving one, but not one person could have even fathomed that it would be changed in the manner we are witnessing today. The current Covid19 crisis has brought about altercations which have never been seen before in social, political, economic, financial as well as religious structures across the world, both at the local and global level. The pandemic has brought the entire world to a standstill. The current virus outbreak, paired with complete lockdowns being imposed in different parts of the world and disruptions to global supply chains, is considered by many to be the greatest shock to the global economy the world has ever seen, far worse than the Great Depression or the 2008 Financial Crisis. The post pandemic economic impacts will not be confined to just supply and demand of essential commodities or Inflation or Foreign Exchange inflows. Each and every aspect of the global economy will feel the repercussions of the global economic shock. With plunging oil prices, expected manifold increase in unemployment rates, world’s leading economies on the verge of collapsing, one should not be surprised that the International Monetary Fund (IMF) recently declared Global Recession. Industries like tourism, financial markets, consumer electronics, transportation and the sports industry are apprehended to take the worst blows of the crisis that the post pandemic era will face. In this article, we will concentrate primarily on the football industry and the economics associated with it. We will study, how the economic crisis created by the Covid19 pandemic will affect the world of football, especially the economic aspects of it, bringing into discourse, not just footballing giants like Real Madrid or Bayern Munich but also smaller clubs playing in the lower tiers of football leagues.
Only a few months back, when the football fanbase across the world was talking about Manchester City being eliminated from The Champions League for two seasons or RB Leipzig qualifying for the Quarter Finals of the same tournament, none of us could have even imagined that the world of football would come to such a standstill. The pandemic does not just entail leagues being suspended to prevent the spread of the virus. It is hard to imagine the adverse impacts, which would be faced by the Football fraternity across the world in the long run. From, smaller clubs being unable to pay the wages of their players to the biggest of clubs losing huge amounts of sponsorship, the worst is yet to come. But, to analyze the repercussions of the Covid19 pandemic on the economics associated with football, we must essentially understand, how these football economies function. Top tiers clubs, especially the ones playing in the Big 5 European leagues have numerous sources of Income and revenue collections for a season are in hundreds of millions of Euros. For an instance, a club like Everton, which has not even qualified for the Champions League since the 2005/06 season made 213 million Euros (19th highest revenue collection), in the 2017/18 season. This is a clear indicator to the money involved in the world of football. However there lies a completely different scenario for the second and third tier clubs, which are expected to face significantly greater challenges in the post pandemic era.
The revenue generation of football clubs has rapidly increased over the past decades and their sources of income have also diversified. In recent times we have seen how clubs like Juventus, Real Madrid, et cetera have taken initiatives after Global Financial Crisis to emerge as global franchises and tap into the rapidly developing markets in countries like India and China. From increased participation in pre-season leagues in South east Asia and the Middle East to opening exclusive brand outlets in developing countries to first team players joining street events in Japan, China and so on, everything is aimed at creating a globally recognizable brand and eventually earn greater revenues. Primarily, clubs earn their revenues from Broadcasting Rights, Sponsorship, and Match day earnings, Merchandise, Transfers and Prize Money from various tournaments.
One of the most important avenues for incomes for clubs is the Broadcasting Rights. Broadcasting companies have to bid for broadcasting rights to telecast the matches, which is a huge source of earning for the clubs. For example, Sky Sports and BT Sport own the broadcasting rights for the Premier League, for UK alone which they acquired for 5 billion pounds, and this amount is shared among the clubs. However, the problem in the current scenario is that, the second and third division matches are usually not broadcast, and hence these clubs have almost zero income from broadcasting. With Football being suspended across the world for almost four months now, these broadcasting companies have undergone major losses and hence, the bids are expected to go much lower in the near future and this will have an adverse impact on the earning of football clubs across the world.
Another aspect of the football economies, which will take an enormous blow will be Match day Revenues earned by clubs. In past few years, we have seen an emerging trend among football clubs, shifting to newer stadiums with increased seating capacity. By way of illustration, Atletico Madrid shifting to Wanda Metropolitan(68,456) from Vicente Calderon (54,907) or Tottenham moving to their new home ground (increasing their seating capacity by almost 26000) or Arsenal increasing the price of their tickets; all have a common ulterior motive, which is to increase match day earnings, mainly acquired from ticket sales. The revenue collection from match day ticket sales are in many cases, the single largest source of income for the smaller clubs playing in the lower tiers. The suspension of matches will be a major setback for these clubs.
“People compare this to 2008 but the difference feels like the scale by which club owners have seen their own businesses decimated. Given owners are going to be hit in the long term, I really think it could be another 10 years before we get back to a financial level similar to now.”
-Mark Warburton, QPR (2nd tier English Club)
Merida, a club in Spain’s third tier, expected a fully packed stadium in its derby match, which was suspended because of the outbreak, and hence cutting off one of the biggest sources of revenue of the club for the season. In a similar manner, smaller clubs across the globe will have to tackle huge challenges once the pandemic situation is normalized.
Unlike the smaller clubs, sponsorship earnings are of immense financial value for the bigger clubs, especially the ones playing in the first division. Just to put this into perspective, Real Madrid has a sponsorship deal with Adidas for 10 years worth 1.1 Billion Euros. However, with the global economy going into recession, which is bound to reduce the disposable income of people, industries like tourism, automobile, etc are bound face huge losses. Real Madrid, Bayern Munich, FC Barcelona, all these clubs received considerable sponsorship from automobile manufacturers, and with the automobile industries said to face a severe slump, sponsorship will surely be stunted in the future. This will have a ripple effect on the sponsorship earnings of the bigger clubs. Though, the top tier clubs do have the scope of better and speedier recovery from this slump, but this plunge in sponsorship will surely affect their finances in the long run.
“It’s quite obvious that having no more events, everything has to be suspended, it seems so logical to me. It’s a case of force majeure,”
-Marc Vanhove, sponsor of Bordeaux, on
cancelling the contract
Besides, transfer fees taking a plunge and losses in merchandising, will further hand an immense economic disadvantage to the clubs.
Top division clubs across the world have already shown signs of economic struggle. However, the effects will extend far beyond the revenue collection of clubs or their economic stability. All stakeholders, including players, managers, scouts, agents to even the ground maintenance staff; everyone will come under the grip of the post pandemic financial crisis to be faced by the football clubs, spreading across all leagues and all leagues, across the world. Clubs across Europe have already handed wage cuts to their employees. With lesser money in the game, there will be a lack of jobs. With players’ contracts running out, cuts in salaries, fall in investment on scouting and player development, the players will probably emerge as the worst off stakeholders at the end of this crisis.
With the Covid19 outbreak, many economies are on the verge of collapse, and consequently, their budgetary allocations will surely be altered. Football fans across the world are dejected by the postponing of Euro. But, we can’t even think about the long run impacts on national football. With an economic crisis of this scale, even national teams will be adversely affected. Countries will be compelled to shift funds to basic welfare and developmental programs, to essentially revitalize the economy, and hence one can expect funding cuts to the sports sector in almost all countries. One of the most important responsibilities of national football bodies is carrying out player scouting and development but with reduced capital being injected, even the quality of football in the coming years might suffer and the entire football fraternity will face a setback, which has hardly been seen before.
It has often been said that given the uniqueness of the football industry, it will survive this economic crisis as it survived the 2008 crisis, which is partly true. The Global financial crisis saw the emergence of Manchester City and PSG as global giants in football, but the world of football has conveniently disregarded the adversities and imbalances rooted in the same financial crisis.
From clubs having to abandon their stadiums to bigger clubs surviving the crunch and gaining hegemonic nature both at a domestic and continental level, we can correctly assume that the disparity between the haves and have nots in the football world is bound to increase. The rise of Real Madrid and FC Barcelona after the 2008 crisis is an appropriate example to depict such trends in football economics.
post 2008 Financial crisis.
But, looking on the brighter side, certain abnormalities which had crept into football would be undone. There is hardly one person, who can justify Neymar’s 222 million Euros transfer, but these hefty transfer fees seem to have become the new normal. If the same amount would have been given to clubs like Ajax or Dortmund or Southampton, the world would have had more players ; the likes of Luis Suarez or Robert Lewandowski or Virgil Van Dijk. These power differentials in football need to be dealt with. Football clubs had started giving unnecessary attention to their brand appeal. At the very least, in the Post pandemic era, we can expect these anomalies to be normalized, and hope that clubs start giving more importance to what happens on the pitch, rather than outside it. But as more money enters this industry, and the differential widens, the future is very uncertain and predict accurately what lies ahead of us.
