Why European football clubs won’t break the bank now

European football clubs spent less to buy new players in 2020-21, a year played under the shadow of the pandemic. This was the case for the five main leagues in England, Italy, Spain, Germany and France. The quantum of cutback varied. Clubs playing in the English Premier League, which is financially the most robust today, saw a decline in spending of 16% against the average of the previous four years. By comparison, the main leagues in Spain and Germany saw transfer spending drop by 58% and 52%, respectively.

The coming year is expected to see clubs spend more than 2020-21 to acquire players, though not at the level of earlier spending-frenzy years. For one, crowds are back. For another, clubs chasing sustainable revenues don’t have a choice. Nothing adds to revenues like winning. And in order to improve prospects of winning, clubs have to invest in players. The recent success of English clubs partly rests on this paradigm. In 2020-21, clubs there spent 75% more than the next best league in buying players.

Revenue Reversals

The past 15 months have been tough for European football clubs. The pandemic affected one full season (2020-21) and a quarter of another season (2019-20). The total revenue loss for top-flight clubs over these two seasons was 7.2 billion euros, according to Uefa, the body governing European football. In 2018-19, combined revenues stood at 21 billion euros. According to Deloitte Football Money League 2021, in the 2019-20 season, the top five clubs by revenues all faced a fall, ranging from 4% at Bayern Munich to 19% at Manchester United.

This reverses some of the revenue gains of the preceding five years. Clubs were riding the virtuous cycle of success, spending and commercialism. Take Liverpool. Under the managerial spell of Jurgen Klopp, the English club has seen its annual revenues graduate from the 400 million euros band to the 600 million euros band, and into the top five. It’s won trophies, it’s had compelling stories, and its players have been sought after.

Course Correction

Keeping that cycle going requires a club to continuously invest in players. In 2018-19, the top 20 clubs with the highest wage bill spent an amount on player salaries that equaled 60% of their revenues. Barcelona had the highest wage bill in absolute terms (529 million euros), and this amounted to 77% of its revenues for that year. Part of this is because of the liberal spending regime of recent pre-pandemic years, when revenues were also rising.

The pandemic has forced clubs to rethink such spending. Last year saw several moves by clubs to optimize player costs. According to KPMG, in 2020, the percentage of players signed without transfer fees increased from 26% to 32%, and the percentage of players on loans from 23% to 30%. It’s not a seller’s market anymore. KPMG estimates the aggregate market value of the top 500 players decreased 10% between February 2020 and January 2021.

Prudent Approach

At the same time, clubs were also carrying the benefits of a decade that increased their profits and strengthened their balance sheets. How much the pandemic affected these balance sheets will influence how much a club is willing to stretch itself. While leading European clubs have debt on their books, for most, it’s not of the crippling kind and is backed by assets.

Take the top 10 clubs with the highest net debt in 2018-19. For nine of them, their net debt is well below 1 as a ratio of long-term assets (players and facilities). In other words, these clubs are worthy asset plays and can raise money if needed. But several of these assets are illiquid (a stadium) or prized (top players). Thus, they would prefer it is revenues—and profits—that service this debt. But for most clubs, their net debt-to-revenue ratio is around or more than 1. They will seek new players, but with prudence.

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