European football must look beyond win-at-all-costs strategy and blend in U.S. approach

Results on the pitch matter. However, in European football, too many “old school” bosses want to win at all costs, taking on unsustainable debt loads and wage-to-revenue ratios, without regard for the economic consequences. This includes draining resources that are urgently needed to respond to the challenge of declining interest among Gen Z (as revealed in recent polling by the European Clubs Association).

European football can take lessons from the American sports properties that operate like a real company, although copy and paste will not work — adaptation to European traditions, cultures and historical realities is a must.

In the European leagues and elite competitions (Champions and Europa League), a few key wins can mean a substantial windfall. Unfortunately, in spite of long odds, many clubs bet the entire bank. It’s a risky proposition.

Indeed, it is not uncommon for club wage-to-revenue ratios to tip into worrying ranges. According to UEFA, the governing body of European football, this ratio reaches 76% in the French league and 64% in the Spanish league, and consistently exceeds 80% in the majority of European leagues. This is a huge contrast with the typical 50%-60% ratio in U.S. leagues.

For a long time, European football media rights have grown from cycle to cycle, incentivizing wage bill growth and financial precariousness. Before the pandemic, we predicted that this cycle of continuous growth would slow; now we fear it may be stunted. COVID has accelerated the urgent need for the sports industry to adjust to digital, cord-cutting and a rejig of marketing dollars. 

As an exogenous shock to the European football industry, the pandemic has and will continue to punish a modus operandi method of management. Across the board, from small to big clubs, wage cuts, deferred compensation, and heavy debt are a stark “yellow flag” for clubs that do not operate with financial discipline (although we must give kudos to Spain’s La Liga, whose financial control system is a benchmark in Europe). This isn’t the only issue affecting clubs.

Football clubs across France, Portugal and Belgium, among others, are now looking down the barrel of Brexit wondering how it will affect their primary backstop to cover operating losses — transfer fees.

For over a decade, many continental European clubs have over-relied on cashing in on high-value player transfers, mostly to the U.K.’s Premier League. Clubs in these markets became talent factories over the years, developing global networks of scouting in Africa, South America and Asia, capable of buying promising players at low prices and selling high. Now, Brexit has arrived, bringing restrictions that are yet to be fully understood. One thing is clear — the impact is likely to dampen continental Europe’s ability to cash in on talent development as a sustainable revenue stream.

Incidentally, football media rights in these three markets have also cratered (see France and MediaPro), grown marginally (see Belgium’s new 5-year deal) or need to be restructured completely (see Portuguese government ruling). 

No doubt, European football is experiencing a period of stabilization and re-think, which we hope will compel innovation and disruption. For astute operators and investors, there is big upside ahead.

The American sports business pillars of strict spending caps, collective bargaining agreements, and equitable distribution of centralized media, sponsorship and licensing rights, have ensured that owning a professional sports team has become a compelling investment asset alternative. These principles have only started to emerge in Europe in the last ten years, in the form of financial fair play, broadcasting rights centralization (although the differential of distribution is about 3 to 1 favoring the “big” clubs at the top of the tables), and digital transformation.

With media rights essentially delegated to league operators, the remaining revenue streams of clubs, both known and not yet discovered, should be the main focus for growth. There are a handful of innovators who recognize and embrace this philosophy, who understand that football clubs are entertainment platforms, with millions of passionate fans around the world, that can be monetized in different ways. Still, there are too few.

Club presidents, owners and management must change their mentality to be future-proof. It is clear that the landscape is changing, and will continue to change at a COVID-induced accelerated pace. The language of modern football clubs must shift to be more business-enabled. This requires diverse, nimble, empowered and skilled management teams.

The shift of American investors into European clubs could be a watershed moment, when must-have sports business principles permeate the football conclaves.

For example, in the U.S., knowing your fan, deeply, is a new-age asset for sports clubs. It drives the monetization strategy by correctly positioning a club’s brand characteristics, purpose, IP, business intelligence and commercial assets with sponsors (partners) who want to micro-target prospective customers. Know-your-fan (KYF) is a trend in the U.S. that has prioritized the first-party-data approach. This would yield massive results in European football, where clubs, even smaller ones, command continental, or even global audiences. This is not the normal MO of commercial and marketing directors within clubs, who think of agencies, brokers, and aggregators as their customers. 

The D2C commercial approach of modern-day sports business requires different skills, sales networks and marketing tactics.

It is clear that European football is attractive. It has a global audience thanks to broadcasting pioneers in the 1990s and 2000s who extended the reach of the game and its main brands to Africa, Asia, South America and, more recently, the U.S. However, the power dynamics on the commercial side of football has shifted in the last few years. Clubs are not as prepared as their American counterparts to ride the wave of modernization. And yet, at a fraction of the value, the compelling argument is that a European football club applying best practices and solid sports business principles will thrive on and off the pitch.

Even if the key objective is to win games, the entrance of big tech, big social and private equity has raised the importance of empowering management teams that embrace change and are business-literate.

Marshall Glickman is CEO of G2 Strategic, Maheta Molango is former CEO of RCD Mallorca and Mounir Zok is CEO of N3XT Sports. In 2020, they created 3MS Consulting, an executive level advisory firm focused on European sports properties.