The Multi-Billion-Dollar Dilemma Facing European Soccer

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Friends,

After months of secret talks, twelve of the world’s most powerful European soccer clubs shocked the world on Sunday, officially announcing their plan to launch the European Super League.

The Super League is a midweek competition designed to allow teams to continue to compete in their domestic leagues. There will be 20 participating clubs, with 15 founding clubs and a qualifying mechanism for a further 5 clubs to qualify annually based on results from the previous season.

The most important part?

Not only will the 15 founding clubs never face relegation, but they wouldn’t compete in the Champions League nor have to share revenue with other clubs in their domestic league.

Here are the founding clubs:

English Clubs

• Arsenal (currently 9th in EPL)

• Chelsea (currently 5th in EPL)

• Liverpool (currently 6th in EPL)

• Manchester City (currently 1st in EPL)

• Manchester United (currently 2nd in EPL) 

• Tottenham Hotspur (currently 7th in EPL)

Spanish Clubs

• Atletico Madrid (currently 1st in La Liga)

• Barcelona (currently 3rd in La Liga)

• Real Madrid (currently 2nd in La Liga)

Italian Clubs

• AC Milan (currently 2nd in Serie A)

• Inter Milan (currently 1st in Serie A)

• Juventus (currently 4th in Serie A)

Yes, you’re right, that’s only twelve clubs.

The Super League plans to add three more founding clubs before the proposed 20-team competition begins. As for who, that’s still up in the air.

Clubs like Bayern Munich & Paris Saint Germain were originally mentioned as options but have since said they are not interested in joining the league.

(Image Source / FootballTrasnfers)

While most Americans refer to the structure of European soccer as confusing or unnecessary in nature, it can actually be broken down quite simply.

Here’s an excellent summary by the NY Times:

In its current form, European soccer supplements domestic league play — an English league for English teams, a Spanish one for Spanish clubs — with Continental competitions between the best clubs.

The most prestigious of those, the Champions League, brings together the best teams from each domestic league each year to play for the title of Europe’s, and arguably the world’s, best club.

The current system funnels hundreds of millions of dollars of annual television and sponsorship revenue to the world’s richest clubs, which supplement their domestic revenue with multimillion-dollar payouts from the Champions League.

The only problem?

Not only does the existing format financially support smaller teams in each country, but given the concept of promotion & relegation — where teams move up and down divisions based on performance — it provides no guarantee that the most financially successful clubs today will remain that way tomorrow.

This is where the Super League comes in.

By working in unison to create a closed league with no promotion or relegation, similar to North American professional sports leagues like the NFL or NBA, founding Super League clubs are looking to lock in their membership for life — regardless of future performance.

Here’s an example…

The Minnesota Timberwolves have only made the NBA playoffs once in the last 15+ years. In the current European soccer model, the Timberwolves would have been relegated, not participated in the Champions League, and underperformed financially.

But in the NBA’s closed model with no fear of poor performance and lofty league-wide revenue sharing agreements, they are in the process of being sold for $1.5 billion — a 466% increase from their $265 million valuation in 2010.

My point?

With the Super League led by American owners like Stan Kroenke, John Henry (FSG), and the Glazer Family — all of whom own major US professional sports teams — it’s hard to imagine they don’t envision a similar outcome for their European investments.

(Table Source / Axios Sports)

Ultimately, like most decisions in professional sports, it all comes down to the money.

It’s no secret that the COVID-19 pandemic financially decimated professional sports leagues and individual teams globally, resulting in billions of dollars of lost revenue without fans in the stands.

European soccer clubs were no different.

Here are the 2020 revenue figures for the Super League’s 12 founding clubs and their percentage decline year-over-year (Source):

• Barcelona: $875M (-15% YoY)

• Real Madrid: $848M (-9% YoY)

• Manchester United: $711M (-19% YoY)

• Liverpool: $684M (-8% YoY)

• Manchester City: $673M (-10% YoY)

• Chelsea: $575M (-8% YoY)

• Tottenham: $546M (-14% YoY)

• Juventus: $487M (-14% YoY)

• Arsenal: $475M (-13% YoY)

• Athletico Madrid: $406M (-10% YoY)

• Inter Milan: $357M (-20% YoY)

• AC Milan: $178M (-28% YoY)

But that only tells half the story…

Through a unique and unprecedented combination of disrupted fixtures, lack of spectators in attendance, and superstar players with multi-million salaries to be paid, almost all major European soccer clubs saw their net debt considerably increase last year.

So how does the Super League help?

Well, there are obvious things like the $400 million payouts each founding club will receive just for joining the league, which is more than 4x what the Champions League winner took home in 2020, but there are also less obvious things.

Along with no fear of relegation, which ensures their annual participation — something the Champions League fails to do — founding clubs will also receive a larger share of the league’s global broadcasting rights moving forward.

The interesting part?

Analysts suggest media rights for the Super League would command more than $3 billion annually, which is 25% higher than the $2.37 billion the Champions League currently generates.

Once you combine the idea of declining revenue, mounting debt, no relegation, and an increased percentage of a larger revenue base, it becomes obvious why these owners are motivated to make the Super League happen.

But that doesn’t mean it’s right…

(Image Credit / The Athletic)

In my opinion, the Super League is a fundamental threat to the future of the world’s most popular sport. It rewards Europe’s largest & wealthiest clubs with long-term financial upside by placing them in a closed competition format with no punishment for poor performance.

Not only will that widen the financial gap when it comes to domestic competition, but who gave these teams the right to self-appoint themselves as the permanent future of European soccer?

Arsenal hasn’t qualified for the Champions League in 5 years, AC Milan hasn’t qualified in 8 years, and Tottenham Hotspur hasn’t been the best team in England in more than 60 years.

I could go on, but you get my point.

Details are changing by the minute. UEFA has threatened Super League players with the inability to participate in the World Cup, and two Premier League teams are now reportedly considering pulling out of the agreement.

My guess?

We’ll eventually look back on this as an extremely ugly and public negotiation, with the Champions League forced to make major changes that benefit the bigger clubs — think guaranteed entry, larger revenue share, and more.

On that front, only time will tell.

Have a great day, and we’ll talk tomorrow.

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