Increase Club Profitability Through Player Contracts – Published in FC Business Magazine
As another lucrative and successful season comes to an end across Europe, the more effective managers and club directors are already articulating their performance targets for the next season.
Just as the club’s position in the league table is usually reflective of the hard work of the manager and the players on the pitch, the profitability of the club is driven by the commercial efforts of the club directors led by the CEO or President.
The primary duty of the CEO of every football club, like in most other businesses, is to take the necessary steps to maximise the club’s revenue whilst minimising its costs in order to leave a substantial residue which is the profit. Thus effective cost management increases profits.
The single most significant component in the costs structure of top flight football clubs is the player wage bill. Get effective control of this and the club’s profitability will rise. By way of illustration, in the 2013/14 season, player wages in the Bundesliga totalled 1bn Euro, representing 51% of the league’s revenue while a similar wage bill in Spain represented 56% of La Liga’s gross revenue. In France’s Ligue 1, 66% of their 1.3bn Euro revenue was spent on player wages whilst Serie A, Italy’s top flight, with revenue of 1.7bn Euro, spent 1.2bn euro on player wages, a ratio of 71%.
The picture in the Premier League is not dissimilar. £1.8bn (2.1bn Euro) was spent on player wages from a total revenue of £2.5bn (2.9bn Euro), again representing 71%. The ratio is even worse in the England’s Championship, where on revenue of £435m player wages soared to £462m, representing 106% of total revenue.
With these statistics it follows that every football club, particularly those that are susceptible to relegation from their respective top flights, should have a proper strategy for managing the player wage bill. Quite apart from negotiating the transfer fee and the player’s wages, it is in skillful drafting of the player’s contracts that the initial opportunity arises for the clubs to exert control over the wage bill as a whole.
Although player’s contracts follow a standard form, it does not follow that they are incapable of amendment to suit the contracting parties’ needs. Clubs should tailor individual player contracts to suit rather than adopting a one size fits all approach. It is often the case that a club suffers a substantial decline in its revenue due, for example, to relegation, but finds itself stuck with inflexible player contracts entered into in the previous season. The dilemma of player wages being disproportionate to the clubs now reduced revenue is a common problem. Prudence dictates that the introduction of suitable provisions should be considered at the outset to cater for such eventualities.