The business of sports teams worse than their profiles

The authors of the book, Soccernomics, point out that soccer clubs are such high profile that people think they are bigger and more profitable businesses than they are.

But, their true finances contradict their large profiles. They are neither big nor very profitable and are downright bad businesses.

For example, the revenue from one of the largest, most popular soccer clubs, Real Madrid is just one-eighth that of a small food distributor in Rhode Island that you never heard of, United Natural Foods.

Owners don’t get rich owning sports teams. They get rich doing other things, like owning United Natural Foods, and their sports teams are a bit like vacation homes for the upper middle class — they don’t expect to see much financial return from, they just enjoy having some place on visit on Sunday afternoons.

The bad economics of sports teams is driven by the fact that there’s desire to win trophies.

The most effective way to win trophies is to hire the best talent possible.

The best talent possible is expensive and the team’s economic profits tend to go to the players rather than the owners.

The Soccernomics guys quote A.T. Kearney,

you could…argue that soccer clubs are nothing more than vessels for transporting soccer’s income to players.

This is true for all sports teams. The New England Patriots, the most successful team in the world’s most valuable league brings in about $600 million per year.

The NFL uses salary caps to help owners make a profit and to help spread the talent to create competitive parity (that doesn’t seem to be working).

Even with the caps, the Patriots pay about $200 million to players, $200 million to cover other expenses (like grounds keeping and front office staff) and have about $200 million left over to cover taxes, debt and to give the owner a return.

$200 million is not chump change, but considering that’s just about twice the income of the small food distributor, it puts it in perspective. The best NFL team of late does just a little better financially than a small food distributor that nobody has ever heard of.

To put it more in perspective, McDonald’s (more well known) operating income averages about $8 billion per year, or 36x that of Patriots.

1 thought on “The business of sports teams worse than their profiles

  1. Pingback: $s Matter for MLS; but there’s more to it | Our Dinner Table

Comments

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s