AC Milan: The Boys are Back in Town
We all have AC Milan in our memories as this triumphant team that dominated European football. For me it’s the 2000s Milan I remember the most, with players like Kaka, Seedorf, Shevchenko, Pirlo, Maldini, Gattuso, Inzaghi, and many more. However, over the last decade, the team has performed nowhere near those glorious times. Financial problems, bad decisions from management, and uncertainty in the sporting area led Milan to some very dark years. But now, there seems to be a light at the end of the tunnel. Since the Elliott Management Corporation took over the club from Chinese billionaire Li Yong Hong, who failed to repay a loan of over €300 million, things seem to be heading in the right direction. With consistency in management, the right executives, a clear project, and smart player recruitment, the team has managed their best league finish since 2011 and qualified to the Champions League for the first time since 2014. In this article, we are going to look at their new business strategy, financial outlook, commercial strategy, and the people leading the new project.
Business Strategy
For a long time, AC Milan relied on President Berlusconi’s extensive resources to attract the best players; at the same time, Italian football was one of the most attractive leagues in the world and players wouldn’t even hesitate at the chance of playing in it. Towards the end of Berlusconi’s tenure at the club, the situation had changed drastically. The seemingly unlimited funds were no longer there, and the spotlight of world football started to shift elsewhere. Eventually, Berlusconi would sell the club to Chinese billionaire Li Yong Hong, whose impact was not the expected one. During the Li era, big sums of many were invested in the club with hopes to reignite the spark and bring Milan back to the top. Unfortunately, the results never came, and the club incurred massive debt. Li defaulted on the loan that he had received from Elliott Management Corporation to buy the club, and consequently, Elliot took over the club.
Ever since Elliot took over, things seem to have changed for the better. One of the key things Elliot has done is appointing the right people at the top level. In 2018, Ivan Gazidis and Paolo Maldini joined the club as CEO and technical director respectively. The duo’s work, along with that of Massara (sporting director), has given Milan a completely new look. The new management quickly understood that dumping large amounts of money into the team, like in the past, was not a viable long-term solution for the club. Instead, they implemented what Gazidis likes to call “progressive football”, meaning that the club now focuses a lot more on player development and creating value, rather than going after the big names that are considerably more expensive. This is something that can be seen with the signings of Hernandez, Saelemaekers, Tonali, and Tomori, all players that came in as interesting projects and are now crucial members of the squad.
A key aspect of their model is that, even though they are searching for value players, they are not trying to implement a “sell to grow” model like the one Sevilla FC might have. Milan is aiming to get back to the top level of European football, and they believe that in order to do so, they must have a high-quality roster. They have received very lucrative offers for players like Kessie, Hernandez, and Bennacer, but they were all refused because the management understands that these players are an important part of the present and future of the team. Having said that, the management has also shown a firm hand when it comes to player contract negotiations and sticking to their established budget. This was clearly seen in the cases of Donnarumma and Çalhanoğlu, in which both players demanded a higher salary than the one the club was willing to offer, and both ended up leaving the club. The management did a great job in making a clear statement that if a player didn’t fit in their budget, they would not deviate from their plan, and instead, they would look elsewhere for an alternative that is in line with their objectives. This is a sign that the club has a clear project that they believe in and that no player is above the wellbeing of the institution.
The second pillar of the club’s restructuring has to do with the commercial side of the business. When the new management came in, they realized that the club was behind in terms of digitalization and commercialization of the brand in comparison with other top teams in Europe. They saw that the AC Milan brand was well known around the world, but it was not being fully exploited. One of the first things they did was to release their official app and increase their activity on social media platforms, so to reach a wider and younger audience. As part of their plan to further improve their commercial performance, there is a project in place to build a new stadium jointly with Inter Milan, which would allow them to increase their revenues and close the gap with the other top teams in Europe.
Financial Outlook
When Elliot took over, the club was undergoing some big financial struggles. As we said before, during Li’s time as owner, big amounts of money were invested in the club and big debts were incurred. As Gazidis explains, “We came to a club that was in a really bad financial situation. The revenues have remained the same for a long time while the other clubs also grew from this point of view, and at the same time the costs have grown leading to really important losses.” Thus, Milan was left with the difficult task of lowering costs and at the same time improving their sporting results.
One of the first things they focused on was lowering their wage expenses. The club decided to get rid of many players that had high salaries, but their performances did not justify such amounts. Some examples were Montolivo, Zapata, Bertolacci, Abate, and Rodriguez. More recently, the decision of not meeting Donnarumma’s demands and deciding to sign Mike Maignan made it clear that Milan is serious about their business plan. Maignan arrived for a fee of €13m and agreed to a five-year contract worth €2.5m per year, making his annual cost €5.1m, considerably lower than the €16m it would have taken to retain Donnarumma. Similarly, this was the case with Çalhanoğlu, whose demands were higher than what the club was willing to pay, and consequently, Milan decided to put their trust in Diaz. In both cases, Milan seems to have made the right decisions as the absences of said players haven’t affected the performance of the team at all.
Another issue that the new management had to deal with was the inherited high amortization and depreciation costs for the first team squad. Milan’s spending spree incurred during the Li era made it really hard to show an operating profit. On top of that, many Milan players were sold at a price lower than their amortized value, resulting in a capital loss. All these things made Milan’s books look bad, which then resulted in not being able to meet Financial Fair Play rules and consequently being banned from European competitions for the 2019/2020 season and missing out on the additional income from participating in the competition.
Looking at AC Milan’s numbers, we can see that the work of Gazidis and his team is starting to pay off. During the 19/20 season, Milan had a loss of €194.6m, which was heavily influenced by the Covid 19 pandemic. The club estimates the pandemic caused them a loss of around €40m that season, mainly in TV revenue and ticket sales. Fast forward to last season, and we can see an immense change in the trend when looking at the club’s net profit/loss. The club posted a net loss of €96.4m, considerably lower than the previous one. This has a lot to do with the return of fans to stadiums, a full calendar back in place, the 2nd place league finish, and the qualification to the Champions League. Another key sign that Milan’s management is doing a great job is that the club currently does not have any debts with banks, unlike many other clubs. This means that the club does not have any interest expenses, which at times can be very high and can cause a big financial burden.
Commercial Strategy
As previously mentioned, one of the main changes the new management made was related to their commercial approach. They understand that the new generations consume entertainment in a different way than previous ones. With the advances of technology and the rise of social media, young audiences like to be more involved and have greater access to the club. In order to satisfy the audiences’ needs, the creation of content is essential. Milan has invested in the creation of a new media studio so that they can create content in-house. This will allow them to create content faster and cheaper than if they were to rent out a facility. Milan has seen their highest growth on Instagram and TikTok, where they have become the most popular Italian club on the platform. On top of that, they are trying to increase their presence on the streaming platform Twitch, where they display a lot of content related to e-sports. These are all efforts to connect and attract new fans and consumers.
Additionally, this “modernization” is attracting a lot of interest from other brands. The number of partnership and sponsorship agreements has increased considerably in the last couple of years. Brands like BMW, Skrill, Banco BPM, Paper Planes, and BitMex have been added to the club’s sponsorship portfolio. As chief revenue officer Casper Stylsvig explains, “I can talk only for us and not the industry as a whole, but I think because we’ve shown our digital capabilities, they buy into that. We hope brands buy into our big plans and innovation and win people through culture by merging the team with sport, fashion, and design.” As a result, not only has the club’s portfolio grown but revenues have increased as well, another clear sign that Milan is headed in the right direction.
The Protagonists
One of the main reasons why the project has been so successful thus far is because it has the right people leading it. The management made up of Ivan Gazidis (CEO), Paolo Maldini (technical director), Fredrick Massara (sporting director), and coach Stefano Pioli has given Milan the stability and confidence they had been missing all these years. Although there were some disagreements in the beginning, especially about who should be the coach and what type of players were needed, it seems as if now everyone is pulling in the same direction and the results can be seen.
A special mention goes to Pioli, who stepped in at a time when the club was in the midst of a storm. From 2014 to 2019, the club had had 7 different coaches before Pioli, none lasting more than two seasons in charge. Marco Giampaolo was the coach designated to lead the team in 2019, but after a terrible start of the season, he was fired after just seven games. Consequently, Stefano Pioli was brought in to lead the team until the end of the season. His appointment led to a lot of criticism from the media and fans; even some people inside the club didn’t think he was the right person for the job, plans were even made to hire Ralf Rangnick at the end of the season. However, thanks to his player management skills, dedication, and approach to football, he quickly proved the doubters wrong. After football resumed from the pandemic, Milan started playing some of the best football we have seen from them in years, managing to get their highest league finish in a decade and qualifying for the Champions League for the first time in seven years. Pioli was then given a contract extension, and for the first time in a long time, there is a sense of excitement and enthusiasm around the club and the fans.
Conclusion
After some dark years, we are finally starting to see a Milan team like the one in our memories, a team able to compete for the big titles and showcasing some attractive football. The road ahead is still long, but Milan seems to be on the right path. The project seems to be sustainable in the long term, and the people leading it have shown to be capable to carry such a task.
