“Dutch disease” #football #footballfinance

Today’s post is kindly written and authorised for our publication by Gustavo Silikovich, Gerente General de Club Atlético River Plate:

“I have been lucky to have been able to visit some clubs in Europe from different leagues and different levels. We were able to be in contact with directors from England and Spain in different meetings. They are either fighting for the championship, trying to enter the UEFA Europe League, or even remain in the Premier League.

In every case, our conversations turned to the diverse income sources that every club has, and how they will project themselves, resource wise, in the future.

I was surprised to hear more than once, generally from marketing people, that their job was going to stop being valuable. Due to the importance of the constantly increasing television income, almost any product or service that the club might provide for their fans was immaterial compared to the large sums of money from the match broadcasting arrangements.

This situation made me recall something that I studied more than once from the time I worked in the energy industry “Dutch disease”.

In this case , we are not talking about the curse that the Netherlands soccer team seems when it comes to becoming world champions, (they have the odd honour to have played the final three times, and some semifinals as well, without winning the cup once.)

On the contrary, the “Dutch disease” is the name given to the economic phenomenon that presents itself when, in a particular country or economy, the resources such as petroleum or gas start to damage other product or service sources (that is to say, all the rest of the activity)

The first time the “Dutch disease” appeared was in 1977 in an article in “The Economist”. It spoke about gas resources in the Netherlands and their effect on the economy.

In the case of football, thanks to input from companies such as Forbes and Deloitte, we can learn about the fact that there are three big sources of income: 1) match day (everything that is generated around the match day); 2) marketing + commercial (sponsorship deals, advertising, merchandising, etc.); 3) diffusion rights ( to a large degree, what TV pays to teams or to leagues to broadcast matches).

In some cases, they add the social part as well, that is to say the input that the members of an institution make monthly, to use the services and keep their solitary condition ??. I have no doubt that some years from now, the digital source will be added as a big source generator, but let’s leave this for now, as it is not the main reason for this post.

How much money enters for TV rights? Contracts are becoming bigger and more interesting all the time, and as a percentage, they are on their way to representing a larger portion of the clubs total incomes. To give an example, Barcelona Football Club and Real Madrid were the clubs that raised the most amount of money for TV rights during the 2013/2014 season ( 160 and 156,8 million euros respectively), although with the new contract, their incomes will decrease ( by accepting to become part of a collective negotiation, to ensure that the rest of the clubs receive more money and in this way improve the product they are selling : The League). The 20 Premier League teams are situated just behind the two giants of The League in the TV income ranking, headed by Chelsea ( €138,6 million), Manchester City (€137,9 million) and Manchester United (€135,5 million).

We shall mention other cases as well, smaller clubs that receive nearly 30 million euros annually from TV. To mention examples from 3 different leagues we can cite Bilbao Athletic (32m), Hamburg (28m) and Atlanta (28m). Obviously, for these clubs, their main sources of incomes comes and will definitely grow to be more dependent on TV.

What point do we want to reach ? That earning money from TV isn’t a good method and that we need to avoid that temptation? Not at all! What I am aiming to do is to discuss the importance of being able to develop ,at the same time and with the same intensity, the other sources of income in the club, to avoid this high level of dependence that might end up with the “Dutch disease” (or as the Spanish saying says “putting all your eggs in the same basket”) As a conclusion, I celebrate all the initiatives many clubs have through their own conviction or need (to be present in leagues that don’t provide large sums of money, like the Argentinian League) to promote all types of new products and services for their fans, increasing the amount of options they have for the use of the stadium, putting into practice new alternatives to associate (for example, “Socio Torcedor” in Brazil or Portugal), adding a streaming platform, creating new alliances with sponsors, or increasing their fans digital base. These are the clubs, as far as I know, that will be the most prepared in the next ten years, they must keep improving their TV incomes, but without entering into the temptation to depend entirely on them.”

Thank you, Gustavo – agree with your sentiments.