FC Porto: Standing Strong
Founded in 1893, Futebol Clube do Porto or FC Porto has been one of the most successful clubs in Portugal and Europe over the last 20 years. They have won 11 of the last 20 league titles, crowned Europa League champions in 2003 and 2011, and Champions League winners in 2004. Unlike many of the big European clubs, Porto lacks the economic resources to compete year after year at the highest level. This is in big part due to the economic situation of the Portuguese league and the country as a whole. Consequently, they have had to adapt the way they operate. With player recruitment and development at the core of their strategy, Porto has been able to remain competitive in a sport where big money is taking over and teams with small budgets are at a big disadvantage. In this article, we look at their business strategy, player recruitment approach, financial situation, and some of the problems they face.
Business Strategy
As mentioned before, FC Porto has a considerably lower budget than the other big teams in Europe. However, Porto’s level of performance has been, for the most part, consistently good throughout the years at a domestic and European level. For this to be possible, they rely on their strategy of buying young players at a low price, developing them, and then selling them for a large profit. This means that every year, Porto looses some of its best players in order to fund the club’s operations. At the same time, Champions League qualification is an essential part of their strategy because of the revenues it generates, meaning that the club still needs to maintain a competitive squad to qualify for it. Striking this balance between profit and sporting results can be very challenging.
Losing your best players every year is clearly not the ideal situation, but the departure of said players leaves room for the new young prospects to step up and showcase their talents. The club characterizes for putting its trust in young players and creating an environment where they can develop in the best possible way. Currently, the squad’s avg age is of 26.19 years and has 5 players age 21 or younger. Now, this might not be as surprising as we would expect from a club that emphasizes on youth, but when we look at their “B” team, things start to make more sense. FC Porto “B” has an avg age of 20.59 years, with 24/29 players aged 21 or younger. There is a big chance that we will never hear about most of the names in this team, but essentially what Porto is doing, is playing a percentages game. They recruit a large number of youngsters, with the hope that a few of them will become good enough for the first team. Once in the first team, they are given the opportunity to learn from more experienced players and to compete against some of the best teams in Europe. As these players keep improving, the club hopes they will attract interest from other teams and ultimately receive big offers from them.
Player Recruitment and Development
As mentioned before, player recruiting is at the center of the club’s business strategy. Every year, some of the best players leave and it is the scouting department’s responsibility to find new talents to replace them. Clearly, there seems to be immense pressure on the shoulders of the department, but the system they have developed has proven to be one of the most successful and consistent in Europe.
Currently, there is a lot of competition inside the youth market; everyone is looking for the next wonder-kid that could become one of the hottest assets in world football. Thus, it is essential to build an efficient scouting mechanism and network to be able to detect the best young talents before the competition does. Porto’s approach as explained by president Pinto da Costa is that the club “works with 250 scouts around the world in countries that make sense for football, because we would not send anyone to Bangladesh.” One of the biggest markets for Porto is South America. Some of their best players, such as James, Falcao, Otavio, and Pepê have come from this region in recent years. Da Costa goes on to explain that they have “internal and external scouts, which are divided into several levels of observation, which allows a player to be viewed by several people”. This is to ensure that the club gets as much information as possible on the player before making a decision and ultimately reduce the chances of error.
We often see clubs offering young players very lucrative contracts in exchange for their signature; this is something Porto clearly cannot do. Instead, they appeal to their reputation to convince players. Not only are they a very successful club, but also, they are known for giving youngsters a chance in the first team. For a player starting his career, this is extremely valuable. The player knows that he will get a fair chance at making the first team and even compete in competitions like the Champions League. Additionally, Porto is known to provide a good environment for players to develop. Porto takes the well-being of their players very seriously and they know how much this can impact players. As Da Costa explains, “in some cases you have a very young player moving to a new continent, a new city, a new club. Those factors could be a serious problem but that’s not the case with Porto. Players come here and feel at home straight away. They immediately understand they have signed for a great club with a winning culture.”
Financial Overview
As we already know, one of the club’s main sources of revenue comes from player transfers. Since the season 14/15, they have made over €550 million in revenue from transfers. Some of the biggest transfers during that period were:
The first 3 names on the list, represent Porto’s strategy at its best. Those 3 players were scouted at a young age, and they moved through the ranks until they reached the first team and ultimately made a big move to another club. It would be wrong for us to say that they didn’t cost the club anything because it took them a certain amount of years to develop that player and some other resources, but the revenue from the sale paid off their investment multiple times over.
When looking at these numbers, it does seem like Porto is doing really well, however that’s far from reality. If we look at the net income of the last couple of years, we can see that Porto operates at a loss most of the years.
Furthermore, if we look at revenues for the same period, we can see how bad Covid-19 impacted the club. There was a clear uptrend until the pandemic hit, and the situation reversed. According to the club, the losses due to the pandemic amount to €15 million in missed revenue from ticket sales, membership fees, and TV rights.
The other big thing we can see when we look at Porto’s financials is how important Champions League qualification is for them. For the 2018/19 season, Porto received a total of €80.6 million from participation in that season’s tournament. Out of those €80.6 million, 14.5 million were just for qualifying. When we look at the 2019 revenues, the money generated from that year’s CL represents 46% of the revenues for that year. This is a worrying matter since almost half of the club’s revenue depends on qualifying for that one tournament, and if they were not to qualify, their finances would suffer greatly.
Problems
When looking at FC Porto’s model, one is likely to think that their model is great; and this is true, especially if you look at the success the club has had throughout the years and the many great players that their scouting department has identified. However, when you play a closer look at the numbers, you soon realize that the situation is far from ideal. In reality, the club has been forced into adapting its model so it can survive in modern football. Obviously, no club wants to lose their best players year after year. But, without the money generated from the transfers, the club would likely go bankrupt. Fans often get angry at the club’s management for selling these players, but what they don’t understand is that without those sales, there is no club.
The big problem here is the environment in which Porto operates. The economic situation of the Portuguese league and Portugal is weaker than the ones other top clubs in Europe face. This can be easily seen just by looking at the value of TV rights in each league. TV rights are generally a club’s main source of income and when you see the differences that exist with other leagues, it is hard to believe that they can compete with the other teams.
When the thing that should be a club’s main source of income is so low, there is no other alternative than to turn to the transfer market to generate income. The club is forced to sell some of their best assets in order to finance their operations and be able to develop new talents to then sell them and so on. At the same time, they still need to maintain a competitive team so that they can qualify for the Champions League to receive that extra income. As you can see, they are stuck in a sort of vicious cycle where it doesn’t seem to be a clear way out. Soon, one starts to wonder for how long is this strategy sustainable? What will be the effects or consequences of the pandemic in the long run for the club? What plans does the league have to try to catch up with the financial situation of other leagues? Regardless of the answer to these questions, it is safe to say that Porto is doing an exceptional job given the circumstances and that they deserve all the praise they get.
Conclusion
The business strategy implemented by Porto is very unique and one that has become an example for many other clubs. Their consistent performance throughout the years could not be possible without their extraordinary scouting department. It seems that no matter what player they lose, they always have a young backup equally good or better. With the help of their wide scouting network and their good reputation, they are able to attract some of the best young prospects out there.
We also learned that FC Porto is in a very tough financial situation due to the environment in which they operate; and that the strategy that they implement, has been developed to “survive” in modern football and remain competitive. When compared to other leagues, the “Primeira Liga” is well behind the other ones from a business perspective and consequently, clubs are forced to adapt their strategies. Looking into the future, it will be interesting to see how Porto will do and if their strategy will be sustainable, especially with the big leagues getting bigger and bigger, while the small ones are left struggling to find funds. Will FC Porto remain one of Europe’s most competitive teams in the long term? Can they get out of the vicious cycle? Only time will tell.
