Europe's governing body for soccer, UEFA, has been trying hard to stop excessive spending by clubs in recent years. Its measures culminated in the Financial Fair Play (FFP) rule, which effectively says that clubs must earn before they spend. The ruling was an attempt to prevent clubs going into massive debt and to control wage and transfer inflation. A key clause in FFP was that clubs could no longer be bankrolled by billionnaires happy to sustain massive losses in order to achieve success.
To a degree FFP has worked. It has put the brakes on the huge spending at Manchester City and Paris Saint-Germain (PSG), but it would be difficult to argue that it has significantly stopped transfer or wage inflation. The existing hierarchy of leading clubs has turned to sponsorship to drive revenue to allow increased spending.
Top of that pile is Manchester United, which, as the latest edition of Sponsorship Today points out, now earns €146 million per year from sponsorship (not including its huge kit deal, which will be worth €96 million p.a. from 2015). Barcelona follow on €107 million with Bayern Munich, Manchester City, PSG and Arsenal all earning more than €60 million.
The revenues then start to drop sharply - there are several clubs in the €20-40 million bracket, but the report shows that Manchester United earns 95 times more from sponsorship than the English Premiership's lowest earner; Burnley.
The reasons for the polarity are two-fold. First, there are now a small group of clubs that have such a huge global presence, that brands around the world will flock to them. Primary deals for such clubs now exceed €30 million. But the big clubs have now realised that they can also sell secondary and even regional rights, sometimes for millions of euros. The smaller clubs, on the other hand, struggle to achieve €1 million for the primary deal and the few secondary deals that they can muster are rarely worth much more than €100,000.
The second reason for the disparity is that small clubs have simply failed to grasp that they can develop commercially. They haven't learned that they too can deliver global exposure. They won't earn anything like the sums that the big clubs achieve, but the opportunity to undertake club tours, training and academies in developing countries is there for all. If the smaller clubs want to have a chance of competing, they need to act quickly.
The growing disparity does, however, present a dilemna for UEFA and national leagues. Are they happy to see a select group of clubs financially breakaway from the rest to such a degree that competition is likely to be eliminated? Until Atletico Madrid's heroics in 2013/14, Spain was looking like a permanent two-horse race. A similar situation had developed in Scotland between Celtic and Rangers - although with Rangers banishment to the lower leagues because of financial irregularities, that became a one-horse race. In England there is a danger that Manchester United could breakaway financially now that the spending reins have been put on Manchester City and Chelsea. Likewise in France, the sponsorship income generated by Paris Saint-Germain looks likely to make a huge competitive difference in a league that has been developing with healthy competition. A similar situation exists in the relatively competitive Germany where there are plenty of teams that have very high attendance revenue, but non can match Bayern Munich's sponsorship income which gives it a €50 million advantage each year, with the gap likely to grow.
IMR certainly doesn't advocate a restriction on the amount of sponsorship that a club can earn - that would be a major restraint of trade. However, for soccer in Europe to flourish there is an urgent need to find a way to increase financial competition. The key motivation for following and enjoying sport is uncertainty of outcome. Where clubs have the resources to utterly dominate, that uncertainty disappears and with it the appeal of the spectacle. We are now nearing the point in Europe, where the financial clout of one or two clubs in each league could mean a virtual end to sporting competition.
UEFA has acted to contain the excesses to a degree, but a new danger is posed when an elite group of clubs can spend excessively without going into the red. It is time to consider new measures to ensure sporting competition is not wiped out on the continent.