Because I always think this kind of thing is a worthy exercise, let’s ask some seemingly dumb questions with apparently easy answers.
Why do (or did) clubs spend more than they earn to get good players?
They do (did) it in order to beat their competitors, to get higher up the league table, to give their fans glory.
Winning’s great, but how do clubs expect to pay back the debt they accrued (unless they’re backed by a wealthy owner) to move up the table?
Well, by a number of ways. Let’s say we’re talking about the Premier League (and basically, we always kind of are at Counter Attack—we know where our bread is buttered). Here’s the breakdown of how TV rights moneys are distributed:
The Founder Members’ Agreement of the Premier League rules that 50% of UK broadcast revenue is split equally between the 20 clubs, 25% is paid in Merit Payments (depending on where a club finishes in the final League table), and the final 25% is paid in Facility Fees each time a club’s matches are on TV in the UK.
All international broadcast revenue is split equally amongst the 20 clubs.
So you get more money the higher up the table you get. Moreover, if you can manage a few seasons closer to the top, you can generate more interest from TV companies, and can earn a chunk of change that way as well.
But that’s not all. The better your team does, the more fans go to games, and the more income from gate sales and merchandise and commercial sales.
Finally, there is the revenue clubs earn from participation in UEFA competitions like the Europa League and the Champions League. How much can a club earn from these competitions?
For the Champions League, teams that make the twenty team playoffs earn a guaranteed payout of €2.1 million. Clubs that make it to the group stage (32 clubs in total) can, as the competition progresses, earn anywhere from €8.6 million all the way to €37.4 million, “not counting the market pool share,” which totals €409.6 million:
The market pool amount will be distributed according to the proportional value of each television market represented by the clubs playing in the UEFA Champions League (group stage onwards), and will be split among those teams competing from a given association.
For the Europa League, the fees are understandably much smaller. The base payment for the 48 clubs that make it to the group stage is €1.3 million, and the highest amount a club can earn is €9.9 million. The market pool for the Europa League is €83.5 million, based on the same criteria as the Premier League.
In short, it pays to win.
So with all that money potentially available, you can see why clubs would want to spend more money than they have in order move on up the table for a slice of that yummy money pie, right?
Right, except there are limited spots available (only so many pie slices to go around), and presumably all other clubs in the same position will be doing the same thing. Additionally, there are a limited number of elite players on the market who will make a major difference to a team’s fortunes and a limited number of spaces available for clubs to move into. And any upward movement will always come at the expense of another club who had the same designs on fortune and glory.
Unless of course you run into a limitless pile of money, like Manchester City, correct?
That’s right, except the success of the City model is entirely based on it being an exception rather than a rule. Opponents of Financial Fair Play for example almost unilaterally point to City and say, “Under FFP, clubs like City can never crack the top four again.” The problem is that the spending power of the club benefactor has to be by definition the highest or among the highest in the league. After all, they’re building a team almost entirely from scratch essentially, with (one supposes) already mediocre club revenues to start.
Let’s say FFP was never introduced, and ten other billionaires with near limitless capital bought some Premier League teams in order to buy the best players and compete with the established top four. The existing order is upended, and voila! The system works!
That sounds like a nice change of pace, but the problem is that unless even richer owners arrive to usurp these new owners, their lock on the top spots will be (theoretically) as ironclad as Man United’s and Chelsea’s until even richer owners come along to break up the party once more. And let’s face it…the gravy train of owners “richer than god” who want a stake in the Premier League won’t go on forever, so wherever this arbitrary merry-go-round stops will be presumably permanent.
In addition to that, because the Rich Kids will be slinging around even greater sums like it ain’t no thang, wages and transfer fees will go up across the board, and clubs that rely on revenues to survive will struggle even more to pay their bills. It could get to the point where to even stay in the Premier League, you’d need a wealthy benefactor with astronomical resources.
This isn’t really a sustainable financial model.
Alright, but doesn’t FFP, which forces clubs to break even before they can compete in Europe, just stop the merry-go-round with revenue-rich teams like Manchester United, Arsenal and Liverpool able to buy all the players?
Well that depends. Are these clubs dominant because they earn high revenues? Or do they earn high revenues because they’re dominant, or at least in Liverpool and increasingly Arsenal’s case, historically popular?
Anyway, for all the talk of Manchester United taking advantage of FFP to buy all the good players with oodles of club revenue, they’ve so far spent £1,540,000 on Penarol’s Guillermo Varela. Arsenal haven’t spent a penny. Liverpool’s £24,464,000 in transfer fees looks impressive, until you notice they’ve moved £27,104,000 off the books.
Meanwhile the clubs supposedly ham-stringed by FFP like Chelsea and Manchester City spent the second most and most respectively so far in the transfer balance sheet. This is in part because of revenues they earned from spending their way to success, in addition to some generous commercial sponsorship deals of varying ethically-sound degrees. They’re followed by Spurs, Southampton, Cardiff City and Norwich in the spending stakes.
This could change as FFP takes effect, with transfer spending cleaving much closer to revenues. But for now it doesn’t seem to have influenced the current market much.
Maybe not this season, but eventually won’t revenue rich teams offer higher wages and transfer fees to buy the good players from smaller clubs and shore up their lock on the top spots?
That could happen. But because traditional revenues, which are almost all pegged to table position (see above), will be even more important in a world without financial doping or debt spending, and because most teams will have to break even (which implies financial health) to compete at the top, there will arguably be less incentive for smaller clubs to sell good players unless it’s for a very high transfer fee (which is a bit of what we’re seeing this window so far). After all, the ability of clubs to spend post FFP will be entirely down to how much they earn, and how much they earn will be directly tied to where they finish in the table.
Not only that, but with clubs only able to spend what they make, wage inflation for players will either slow, stop, or decrease. That will increase the spending power of teams in the top flight, off-setting the effects of losing a key player to a richer team.
In an (ideal) post FFP world, players will be even more important to teams, and a successful season or two with its attendant increase in turnover could have a much bigger effect on a single club. That could put even more pressure on smart player recruitment at all levels of the game, further decreasing the importance of spending wars to compete.