Soccer, or soccer as it is known in most parts of the world, is a team sport involving two competing teams with eleven field players each. It is considered the most popular sport in the world, with an estimated four billion fans and 270 million players globally. Soccer is watched and played by people of all ages, genders, cultures and backgrounds, and it generates both direct and implied benefits for individuals, communities and society at large.
But how does money drive this global phenomenon? How do various economic factors influence the professional and grassroots soccer industry in Europe and around the world? What are the costs and benefits of soccer for different stakeholders, such as clubs, players, fans, media, sponsors and governments? How does soccer affect the global market, such as player transfers, sponsorship deals, media rights and tourism?
By the end of this article, you will have a better understanding of how money drives various aspects of soccer at both professional and grassroots levels. You will also learn about some of the challenges and opportunities facing the soccer industry in the future, such as financial regulation, corruption scandals, technological innovation and social responsibility.
The economic theory of professional soccer leagues
How are soccer leagues controlled and compete for cash, players, fans, and media attention? Professional soccer league economic theory addresses these concerns. This theory analyses soccer leagues and their clubs using microeconomic concepts including supply and demand, market structure, competition, monopoly, oligopoly, game theory, and externalities.
This idea discusses competitive balance, or a league’s teams’ capacity to win matches and championships. Competitive balance impacts match and tournament outcome uncertainty, which makes a league more appealing and profitable. Soccer fans prefer close, exciting games over predictable, boring ones; therefore, uncertainty is thought to increase demand.
Many reasons produce market flaws and asymmetries among league teams, making competitive balance difficult. Some teams have larger markets or fan bases, allowing them to recruit better players and staff. Some teams are more famous due to their past achievements. Some teams have greater facilities and infrastructure, making them more comfortable and convenient. These elements can generate a positive feedback loop where successful teams get better and unsuccessful teams get worse.
Soccer leagues use salary caps, revenue sharing, luxury taxes, transfer fees, draught systems, promotion and relegation systems, etc. to address this issue. These methods limit a league’s teams’ expenditure or income or allocate it more fairly. The goal is to level the playing field for league teams and increase competition and unpredictability.
These systems alter league teams’ motivations and efficiency; therefore, they have pros and cons. Salary caps may lower teams’ wage bills, but they may also reduce the market’s player quality and quantity. Revenue sharing may boost smaller-market teams’ income, but it may deter them from investing or improving. Transfer fees may compensate selling teams for losing players, but they may also limit player movement.
Thus, selecting the best soccer league regulation and redistribution is difficult. It demands rigorous examination of trade-offs between aims and constraints including efficiency, equity, welfare, innovation, etc. It also demands examination of the dynamic and strategic interactions between league clubs and leagues in different countries or regions.
Game theory, a field of mathematics, models conflict or cooperation between rational agents with differing preferences or aims. Game theory may help us understand how soccer leagues and clubs make decisions about their tactics, actions, and payoffs, such as setting prices, choosing players, building alliances, etc.
Forecasting models use previous data to anticipate future events or trends. Forecasting models may forecast how soccer leagues and clubs function under different market size, demand elasticity, cost structure, regulation intensity, etc., and how these changes effect their revenues and profits.
Another concept that goes hand in hand with forecasting is betting. Betting and sportsbooks are platforms or services that allow people to wager money on soccer outcomes. They can influence the interest and excitement of fans, the integrity and credibility of players and referees, and the revenues and costs of clubs and leagues. They can also create trade-offs and interactions among different stakeholders in the soccer market. The best sportsbooks have options and guides that will help you make the right bets.
The commercial structure and development of professional soccer clubs
Soccer clubs make money from sponsorships, merchandising sales, licensing agreements, and more. The club’s brand value—its popularity, reputation, success, and fan loyalty—determines commercial earnings. Clubs with better brand value can attract more and larger sponsors, sell more and higher-priced merchandise, and license their name and logo to more and diversified products. Real Madrid was Forbes’ 2022 most valuable soccer club brand at US$1.42 billion.
Soccer teams also make money from selling television rights to their matches and competitions. The club’s media market—its location, fan base, and demographics—determines broadcasting revenue. Media markets with more viewers or subscribers can negotiate better terms with broadcasters or platforms. Liverpool FC earned the most broadcasting revenue in 2020/21, €231.3 million, according to Deloitte.
Matchday revenue—ticket sales, hospitality packages, food and beverage sales—is a third key revenue stream for soccer clubs. Stadium capacity and occupancy reflect the club’s physical infrastructure and crowd demand, affecting matchday revenue. Larger and crowded stadiums can sell more and higher-priced tickets and services. FC Barcelona’s €126.4 million matchday income in 2020/21 led Deloitte.
Player trading revenue, including sales and loans, is a fourth revenue stream for soccer teams. The club’s player assets—reflecting its scouting, recruitment, and development—determine player trading revenue. Clubs with more valuable player assets can sell or loan them for more money. Chelsea FC’s €204.2 million player transaction revenue in 2020/21 led Transfermarkt.
Soccer clubs pay to make money. Soccer clubs pay players and agents salaries, bonuses, commissions, and taxes. The club’s competitiveness and negotiation power determine player compensation. Clubs with better players and longer contracts pay more to attract and retain them. FC Barcelona has the largest 2020/21 player wage bill of €443 million.
Soccer teams also pay for stadium maintenance, security, utilities, and taxes. The club’s stadium ownership and age determine its financial strategy and investment demands. Owning stadiums reduces expenses but increases depreciation. Older stadiums cost more, but they amortise faster.
Administration costs—salaries, incentives, commissions, and taxes for non-player staff—are a third major soccer club expense. Club administration costs rely on personnel quantity and quality, which indicate organisational structure and efficiency. Clubs with larger and better-trained personnel spend more.
Player amortisation—the gradual write-off of transfer fees over players’ contracts—is a fourth possible cost component for soccer clubs. Club spending and financial resources determine player amortisation. Clubs that pay more for more players have higher amortisation expenses.
Soccer clubs’ financial performance and valuation depend on revenue minus costs. Financial performance gauges a club’s season- or year-long profitability. Valuation is a club’s share price or enterprise value. Revenues, costs, assets, liabilities, cash flows, growth prospects, risks, etc. affect financial performance and valuation.
Operating profit—the difference between operating revenues and operating costs—is a typical financial measure for soccer clubs. Commercial, television, and matchday revenues exclude player trading revenues. Operating costs include player salary, stadium fees, and administration, but not amortisation or interest. Operating profit excludes player trading and financing.
Net profit—the difference between income and costs—is another financial measure for soccer clubs. All revenues—commercial, broadcasting, matchday, and player trading—are included. Player salary, stadium fees, administration, player amortisation, and interest payments make up total costs. Net profit is a club’s total income less its total expenses.
Enterprise value (EV)—market capitalization plus net debt—is a typical soccer club valuation measure. Share price and outstanding shares determine market capitalisation. Net debt is debt minus cash or cash equivalents. Enterprise value is the cost of buying the club, including equity and debt.
P/E, the ratio of market capitalization to net profit, is another soccer club value measure. Price-to-earnings ratio shows investors’ willingness to pay each unit of club earnings. stronger P/E ratios indicate stronger valuation and growth expectations.
Real Madrid had the highest enterprise value and price-to-earnings ratio in 2022, according to Forbes. Bayern Munich had the highest operational profit and net profit in 2020/21.
What Influences Professional Soccer Players’ Salaries?
How do leagues and positions affect soccer players’ wages? This section answers these questions. Economic theory and empirical data will be used to examine professional soccer players’ pay.
quantity and demand—the market’s quantity and quality of players and clubs’ tastes and budgets—determine soccer players’ earnings. Player talent, age, nationality, contract term, injury risk, etc. affect supply and demand. Players with higher talent, younger age, more marketable nationality, longer contract period, and reduced injury risk earn more.
Bargaining power—players’ and clubs’ relative strength in contract negotiations—also affects soccer players’ pay. Player reputation, performance, loyalty, alternatives, etc. affect bargaining power. Players with a stronger reputation, performance, loyalty, and options earn more.
Productivity—players’ contribution to their teams’ output—is a third major factor in soccer players’ compensation. Player skills, effort, teamwork, motivation, etc. affect productivity. Players with superior skills, effort, teamwork, and motivation earn more.
Discrimination, the unequal treatment of soccer players based on personal traits unrelated to productivity, is a fourth possible wage determinant. Player colour, ethnicity, religion, gender, sexual orientation, etc. affect discrimination. Minority and disadvantaged players earn less than majority and advantaged players.
These factors affect soccer player earnings across leagues and positions. Kylian Mbappé of Paris Saint-Germain (PSG) was Forbes’ highest-paid soccer player in 2022 at US$110 million. In 2021/22, La Liga had the highest average salary at €2.9 million per player, according to Transfermarkt. Forwards (strikers) had the highest average income in 2019/20 at €3.8 million, according to KPMG.
In this article, we have explored how money drives various aspects of soccer at both professional and grassroots levels. We have covered three main topics:
- The economic theory of professional soccer leagues: how they are organised, controlled, and compete for income, players, fans, and media attention.
- How professional soccer clubs make money from membership fees, ticket sales, television rights, sponsorship partnerships, retail sales, and player moves.
- Supply and demand, negotiating power, productivity, performance, reputation, age, nationality, and discrimination determine professional soccer players’ salary.
We selected real-world examples from European leagues to demonstrate these themes. We also examined the ramifications and problems for clubs, leagues, and society. This essay should help you comprehend soccer economics and pique your curiosity in this intriguing field. Thanks for reading.