KPMG analysis: Record football transfer fees in line with clubs’ revenues

Paul Pogba’s value increased again over the weekend. - PHOTO: AP

Each year transfer fees in Europe’s football leagues appear to be spiraling out of control. Ever larger television and sponsorship deals have injected more cash into the game and inflated the price clubs have to pay for football’s biggest stars.

This year the transfers of Paul Pogba from Juventus Turin to Manchester United for a record 115 million euros (US$130 million) and Gonzalo Higuain’s move from Naples to Juventus for 90 million euros (US$101.5 million) stood out.

For the sports consulting arm of KPMG, however, these transfer fees are not unduly high and still in line with the clubs’ operating revenues and the general market trends seen in previous years.

KPMG Football Benchmark, an Internet platform for football financial data, compared the fees spent by clubs with their respective operating revenues and found that since 2007 major clubs have been prepared to spend about 20 percent of their operating revenue on a single star player signing.

While some transfers are clearly the result of the sale of another player, such as Higuain replacing Pogba at Juventus, the analysis shows that for the past 10 years, clubs were willing to wager a significant portion of their balance sheet for the acquisition of individual marquee players.

In fact, during the analyzed period, only two of the most expensive signings of the year were significantly below the 20 percent revenue mark. David Villa’s signing by FC Barcelona in the summer of 2010 represented not more than 10 percent of the European giant’s operating revenue at that time.

football-transfersAt the other end of the spectrum, Robinho’s move to Manchester City, the first after the club’s takeover by the Abu Dhabi United Group in 2008, exceeded 40 percent of City’s operating revenue in 2007-08.

“When compared to Manchester United’s 2014-15 operating revenue [2015-16 data is not yet available], the transfer fee paid by the club for Paul Pogba seems in line with the industry standards of the past decade,” said Football Benchmark. “Moreover, once adjusted to take into account expected operating revenue growth to be published for the football season 2015-2016, the transfer fee to operating revenue ratio of the Pogba transaction seems likely to be well below 20 percent.”

Higuain’s 90 million euro transfer to Juventus, meanwhile, is equivalent to 28 percent of the club’s 2014-15 operating revenue. However, once adjusted to the 2015-16 figures, Football Benchmark said in its analysis, the ratio of the Argentinian striker’s move is more likely to be comparable to that of Cristiano Ronaldo when he moved to Real Madrid in 2009 (23 percent) and certainly above 20 percent.

Commercial revenues are growing

Both Manchester United and Juventus Turin reported that as of March 2016 they have grown their revenue by 31.6 percent and 28.4 percent, respectively, year on year.

And they are not alone. Larger TV and commercial deals have grown the football industry as a whole.

While new TV deals such as in the U.K. have grabbed the headlines, it is the expansion of sponsorship and merchandizing agreements that have primarily driven the growth.

As a result, the revenue structure of the largest European football clubs, which includes match-day revenues such as gate receipts, broadcasting revenue from domestic and international matches and commercial revenue through sponsorship deals and merchandise, has evolved over the past 10 years.

The biggest difference between the largest clubs and those further down the food chain is the size of the commercial revenue and for all clubs, commercial revenue is taking up an ever-growing share of total turnover. In 2005, Manchester United made most of its money from gate receipts (42 percent), followed by TV revenue (31 percent) and commercial activities (27 percent).

Ten years later, exactly half of all revenue comes from sponsorships and merchandise, and even though broadcasting revenues have more than doubled, they only make up 27 percent of the club’s total revenue. Correspondingly, the share of match-day revenue has dropped 15 percentage points to 23 percent.

The top 20 teams in Europe followed similar trends. The commercial revenue expansion is no surprise given the global brand appeal of the top European leagues and the efforts made by the large clubs to widen their fan base, particularly in Asia and North America.

Financial fair play

Although transfer fees are increasing and expected to grow further, this is largely the result of the game’s overall growth and the boost that star players can have on commercial revenues via the sale of football shirts and other merchandise.

Since the European footballing body UEFA agreed to financial fair play rules in 2009 to prevent clubs from spending more than they earn and endangering the long-term health of the game, the ratio of record transfer fee to turnover has come down.

Zinedine Zidane’s move to Real Madrid in 2001, for example, still accounted for more than half (53 percent) of Real’s operating revenue at the time.

However, outside of Europe, where UEFA’s rules that limit excessive spending don’t apply, sensible financial decisions have not yet prevailed as clubs in the Chinese Super League are likely to spend significantly more in relation to their means. One of many examples is Shanghai SIPG’s splashing out a sum that is likely to be higher than its overall revenue with the signing of Brazilian player Hulk, KPMG Football Benchmark noted.