On Tuesday night, AC Milan will host Newcastle United for the opening Champions League game of what many pundits have badged this year’s group of death.
The tie pits an Italian side owned by a US private equity firm against an English team backed by Saudi Arabia’s sovereign wealth fund.
The other two teams in Group F complete the picture of elite European football in the 21st century: Qatar-owned French champions Paris Saint-Germain and Germany’s Borussia Dortmund, which is listed on the stock market but run by its fans.
The game is significant for other reasons, however. It kicks off the last Champions League tournament before sweeping changes come in next summer that do away with World Cup-style group stages altogether in favour of an expanded league format designed to broaden its appeal and grow broadcast revenues.
It is also the first match to take place under a new financial regime that many working in football hope can put a lid on years of rapid cost inflation that has battered the balance sheets of many clubs despite a long period of soaring revenue.
“The system is failing,” says one chief executive of a club that regularly competes in European competitions. “The business has been growing massively, yet most clubs are barely breaking even.”
Some players and agents fear a creep towards cutting wages, while some clubs worry that tighter regulation will cement the current financial pecking order in the game, dampening ambition.
But those who support the rule changes — including the growing number of US investors now involved in the sport — see the potential to make football’s business model more sustainable and pave the way towards higher and steadier profits.
For some, the rules could provide a way to exit the never-ending spiral of rich, new club owners pushing up wages and transfer fees for star players.
“What’s happening is we see the massive investments that are coming, from the Middle East in particular, but elsewhere as well,” says Ivan Gazidis, former chief executive of AC Milan and Arsenal. “And for any club that is looking to be sustainably managed, that’s a very difficult environment to compete in.”
Elusive profits
As a sector, European football’s income has ballooned over the past 20 years.
Broadcast money for the Premier League and the Champions League in particular have soared, partly thanks to growing international interest. Total income across the “big five” leagues of England, Spain, Germany, Italy and France rose to a record €17.2bn in the 2021-22 season, according to Deloitte, up from €9.3bn a decade earlier.
However, profits have proven far more elusive. Former Tottenham Hotspur owner Lord Alan Sugar once blamed it on what he called the “prune juice” effect. When asked about the Premier League’s latest multibillion-pound TV deal back in 2015, he said the money would simply “go in one end and out the other”. Players and agents would be the prime beneficiaries of all that extra income, he complained.
Sure enough, football clubs have been quick to spend their riches on players. During this summer’s transfer window, a record $7.36bn was spent, according to global figures from Fifa, with another $697mn going on agent fees. Wage costs have also surged, which some blame on a handful of club owners, a few bankrolled by sovereign states, with a near limitless ability to spend in pursuit of sporting success.
Football’s record of delivering profits has been thin for many years. But the pandemic pushed many clubs from a precarious position into serious financial stress. Uefa estimates that European football clubs lost more than €10bn between 2020 and 2022.
Frustration at the uphill battle to make money in football was one of the key drivers behind the ill-fated European Super League project, when a dozen elite teams attempted to form a breakaway competition. While the ESL quickly unravelled, the financial challenges those involved hoped to solve remain.
Now there is increasing pressure for sector-wide fixes as more professional investors buy into European football. A wave of investor interest has brought several private equity firms to European football in recent years, including Clearlake Capital at Chelsea and Silver Lake at Manchester City. CVC has invested in the Spanish and French leagues, while Sixth Street has done deals with arch rivals Real Madrid and Barcelona.
“The more institutional capital you have in football, the bigger the push for more financial sustainability,” says Fausto Zanetton, chief executive of Tifosy, an advisory firm focused on football. “But there’s a real issue around how you exit these investments — how do you find the next buyer? In order to attract long-term investors, you need cashflow generation.”
Ultra wealthy individuals with a strong record in US sport have come too, such as Apollo Global Management co-founder Josh Harris, who owns a stake in Crystal Palace, and Stephen Pagliuca, the Boston Celtics co-owner who led the acquisition of Italian side Atalanta last year. Many are also building multiclub networks across football, giving them a greater say in how the sport operates.
“It’s all about being self-sustaining over very long periods of time. Uefa’s definitely headed in that direction, the Premier League is heading in that direction. I would expect that trend to continue,” says one US investor involved in European football. “The only people who wouldn’t be supportive of that are sovereign nations.”
A level playing field
Those running football see a way forward through increased financial regulation.
Uefa, European football’s governing body, brought in new rules this summer that limit the amount a club participating in region-wide competitions can spend on its playing squad to 90 per cent of its revenue.
That cap is set to come down to 80 per cent next year, and settle at 70 per cent the year after — a gradual squeeze that will initially have a direct impact on only a handful of clubs, but will ultimately be widely felt. The average wage bill in Italy in the 2021-22 season was equal to 83 per cent of revenue, according to Deloitte, while in France the figure was 87 per cent.
The new rules also have a clearer scheme of sanctions built in, such as transfer bans or limits on squad size, which is an important distinction from previous financial regulation, where punishments were typically negotiated behind closed doors.
“For me, it’s very important that a club can spend the money they earn, but not what they were given from the owners every year,” says Hans-Joachim Watzke, chair of Borussia Dortmund and a member of Uefa’s executive committee, which formulated the rules. “A lot of people will fight against this,” he adds, admitting there is a long way to go. “With my influence, I will make it stricter — that’s the only way.”
Uefa is already talking about going further. Its president, Aleksander Čeferin, has raised the prospect of a hard cost limit, rather than one linked to revenue, and talked openly about a future salary cap for players. This would in theory make it harder for the richest clubs — many of them in England — to simply outspend their rivals thanks to their far higher TV revenue.
“If the budgets go sky-high then our competitive balance is a problem,” he told the Men in Blazers podcast this year. “Big clubs, small clubs, state-owned clubs, billionaire-owned clubs, everybody agrees.”
Cost controls and salary caps are a feature of other sports, particularly in the US. Hard spending limits have been a boon for owners and helped boost team valuations in basketball, NFL and more recently in Formula One. A Forbes list of the 50 most valuable sports franchises published last week includes just seven from global football, compared with 30 NFL teams.
Other football competitions, such as Spain’s La Liga, are subject to financial controls that force member clubs to submit regular updates on revenue that the league then uses to allocate a set budget for playing staff. English football is due to get its own independent regulator in the next year or two, while the Premier League, by far the richest domestic football league, is discussing the introduction of its own version of the Uefa rules.
“What people want, what owners want, what the fans want is a level playing field. That’s what governing bodies and organisations like the Premier League want to provide,” says Richard Masters, chief executive of the Premier League.
Even clubs backed by Gulf states are in agreement. Speaking on the sidelines of the general assembly of the European Club Association in Berlin, PSG president Nasser Al-Khelaïfi said that there was growing consensus that more needed to be done to cut rising costs, including potential hard limits on spending.
“If you ask all the clubs here, nobody wants to lose money. No one from big to smallest,” said Al-Khelaïfi, who is also chair of the ECA and a member of Uefa’s executive committee. “If we can legally come to a way that the rules will allow us [to bring in a salary cap], everyone will support it, definitely. No one will say no. This is what we want.”
PSG is itself in a period of transition as it seeks to bring down its record-breaking levels of spending. The club has spent nearly €2bn on players since being bought by state-backed Qatar Sports Investment in 2011, according to Transfermarkt, and was fined €10mn last year for breaching Uefa’s financial rules.
According to analysis from Football Benchmark, a consultancy, PSG’s wage bill reached 109 per cent of its revenue in the 2021-22 season thanks to star names Kylian Mbappé, Neymar and Lionel Messi. The latter two have since left the club while PSG’s owner is discussing selling a stake to Arctos, the sport-focused investment fund.
Player pushback
While players have been the main winners from the football boom, they are also set to bear the brunt of any effort to rein in spending.
Jonas Baer-Hoffmann, general secretary of players union Fifpro has called the new regulations “the gateway drug to a salary cap”, something many doubt can work in European football.
A move to co-ordinate wages among clubs that compete against each would be tantamount to price-fixing, some sports lawyers say, while varying tax systems would make it hard to implement.
“If clubs agree among themselves to this, then we very quickly have a conversation about EU competition law,” Baer-Hoffmann told the Financial Times’s Business of Football summit this year.
There are also fears that spending limits linked to income risk eroding interest in domestic competitions by cementing the financial advantages of the biggest teams. Manchester City, ranked by Deloitte as the richest club in football, had revenue of €731mn in the 2021-22 season, more than double that of West Ham, who finished six places below City in the Premier League table that year.
Already several leagues are struggling to maintain the levels of unpredictability and jeopardy that fuel fan interest. PSG has won nine of the past 11 French league titles, Bayern Munich has been German champions 11 times in a row, while Manchester City has won five in six Premier League races.
“It’s difficult to match the interests of local clubs with those that have become global brands,” says Antonio Di Cianni, head of economics and strategy at Football Benchmark. “Will these new rules make everyone happy? I don’t think so.”
Others doubt whether football’s governing bodies will be able to enforce new rules in a way that will actually deter ambitious clubs from breaching them. The previous iteration of football’s spending financial rules, known as Financial Fair Play, failed to deliver a meaningful drop in spending, with some clubs opting to continue spending and simply pay the resultant fines — in effect turning the penalties into a tax.
Uefa’s most high-profile move to impose sporting sanctions in an FFP case — a two-year ban from the Champions League for Manchester City — was overturned in the Court of Arbitration for Sport. The Premier League’s own case against City was referred to an independent commission this year, but relates to more than 100 alleged breaches dating back more than a decade. City denies any wrongdoing.
“The rules are one thing, enforcement is another thing. And then there is the political will to make big changes,” says the chief executive of another club that often participates in Uefa competitions. “I have my doubts about all three.”
New rivals
The move to limit spending comes at a moment when the revenue outlook for the industry looks shaky. Domestic media rights are up for auction in Italy and France, with the Premier League set to go to market before the end of the year and Germany’s Bundesliga in the first quarter of next year.
With the pay-TV market under pressure to cut costs and big streaming companies also tempering their ambitions, media and football executives have expressed doubts about the prospects of attracting strong bids. Enders Analysis has gone further, describing the market for European football rights as in a period of “significant decline” that has been partially obscured by inflation.
The five biggest summer transfers
Basic transfer fee stated. Add-ons could make the player more expensive overall
Declan Rice, 24 (defensive midfield) | West Ham United to Arsenal
€116.6mn
Moisés Caicedo, 21 (defensive midfield) | Brighton & Hove Albion to Chelsea
€116mn
Jude Bellingham, 20 (central midfield) | Borussia Dortmund to Real Madrid
€103mn
Harry Kane, 30 (centre-forward) | Tottenham Hotspur to Bayern Munich
€100mn
Randal Kolo Muani, 24 (centre-forward) | Eintracht Frankfurt to Paris Saint-Germain
€95mn
Source: Transfermarkt
European football also faces the sudden emergence of a new rival for talent: Saudi Arabia. In June, four top Saudi clubs were handed over to the country’s sovereign wealth fund, and given the greenlight to acquire top players on bumper salaries.
When the transfer window closed three months later, the extent of Saudi ambitions had become clearer. Teams from the kingdom spent almost $1bn on players during the summer, according to Deloitte, with Saudi Pro League clubs accounting for three of the top six spending clubs in the world. Riyadh-based Al-Hilal committed more than €350mn in transfer fees alone.
“We’re only at the start of something. It’s something we have to keep an eye on,” says the Premier League’s Masters of the Saudi spending spree. “Football competitions are in competition with each other. Everyone has to make sure within competition structures there is a level playing field, but at the moment we’re a way off worrying about that.”
Saudi spending has been a mixed blessing for European football clubs. Some have been forced to replace players they expected to stay, others to look elsewhere after their targets moved to the Gulf.
But some clubs were able to offload unwanted stars on big salaries and trim bloated squads. For now, it is unclear whether Saudi Arabia’s push into football represents a threat, an opportunity, or a bit of both.
“We must watch what happens in Saudi Arabia,” says Watzke, of Dortmund. “They have so much money, we’ll have to see what they want to do with it.”
Additional reporting by Samuel Agini
Data visualisation by Chris Campbell