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Soccer as a business: How visible prosperity hides huge debts

  • February 9, 2024
  • 4 min read
Soccer as a business: How visible prosperity hides huge debts

Soccer is a sport that brings many financial benefits, but on the other hand, it is expensive to maintain, especially at the club level. Clubs regularly owe money to banks, other teams, players, employees, and businesses that provide them with products and services.

For the European giants, debts are more of a problem to help solve the lack of investment in the near future. Many European soccer clubs have staggering amounts of debt, the largest of which are:

  • Barcelona – €1.35 billion;
  • Inter Milan – €702 million;
  • AC Milan – €666 million;
  • Real Madrid – €662 million;
  • Arsenal – €625 million;
  • Atlético Madrid – €523 million;
  • Manchester United – €450 million;
  • Liverpool – €386 million.

Do debts indicate the club’s insolvency?

Today, sports clubs operate as business companies, so it is not surprising that we see them a source of revenue. When people see that a club has massive debts, they usually assume that the club is about to declare bankruptcy. However, they do not see the revenue generated by the club.

Sports clubs “borrow money” from banks to potentially grow their team by bringing in top players. On the other hand, by attracting star players, they participate in major tournaments. This is how they hope to add value to the club as they aim to attract more fans and get improved benefits. Why? More fans = more money from tickets and goods; better outcomes = more money from TV rights or broadcasts.

Why do companies choose to take on debt? In reality, debt can be a less expensive form of funding than equity. This is the primary reason why corporations choose to finance their operations primarily with debt. However, financing a business only with debt is dangerous, thus it is critical to keep the average cost of capital low or to maintain a balance between the use of debt and equity.

Most studies show that European soccer clubs with higher debts can achieve higher levels of sporting performance. How do these clubs use their debt? They use the income generated by the debt/loan to buy the best players, which increases the chances of qualifying for higher competitions such as the UEFA Champions League, in which the Club receives €15.25 million as distribution and €2.7 million for a win or €900,000 for a draw (UEFA, season 19/20).

If we take into account bonuses for reaching the higher stages, the Club could get €9.5m for the 1/8 finals, €10.5m for the quarter-finals, €12m for the semi-finals, and €15m for the final, plus another €4m for winning the Final. In addition to the big competitions, there are national competitions that can bring in higher revenues from broadcasting and TV rights.

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How expenses are counted

Debt has another function related to expenses. With debt, sports clubs can cover their expenses, which could be characterized as equipment, equipment, coaches and players, taxes and insurance premiums, membership fees, competition costs, club ceremonies, etc.

A club may have €300 million in debt but it generates €400 million in revenue from sponsors, ticket sales, merchandise, and player sales.

If we make a simple calculation, 400 minus 300 would be 100, meaning the Club would have €100 million. Revenue, of course, must include expenses, but here they are excluded. Since most football clubs are non-profit entities, it is improper for owners and members to receive a direct share of the club’s income. The funds are subsequently dispersed among the players as bonuses, and the board may utilize them to acquire players, reinvest the Youth Academy, settle remaining debt, etc.

Conclusion

So, just because a club has debts does not indicate it is bankrupt; as previously said, sports clubs take out loans from banks to boost their budget in order to acquire better players, invest in young academies, or pay off prior debts, among other things.

If we go back to the “more fans = more money” formula, we can understand why clubs are looking to attract more fans. If a Club manages to create a large pool of fans, its value will increase. As more sponsors get engaged, more merch will be purchased, and more people will watch the matches, increasing revenue from admission fees. And to attract more sponsors, the key factor is results.

That’s why in sports, winning matters. If you too want to be among the winners, go to https://india-1xbet.in/promotions/online-casino and try your luck. Developing the perfect strategy is difficult, but at the end of the day, profits from sports clubs also matter.

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Amelia Josh