Chart of the Week (Mar. 16)

A few weeks ago, our colleague Alastair Seaman spoke at the Financial Times Business of Football Conference on investment in European football. One of our key focus areas has been UEFA’s new financial sustainability regulations, which aim to promote improved stability, solvency, and cost control across the ecosystem at large. This season is the first in which these new regulations have come into effect and, already, we have observed increased conservatism in the spending behavior of elite European clubs.

...the rules were intended to be a more “sophisticated … complex, and complete” set of rules...The goal is to promote a sustainable “ecosystem at large.”

For context, regulations in European football are imposed at the governing body ( UEFA ) and domestic league (e.g., English Premier League ) level.? All clubs participating in European competitions (Champions League, Europa League, and Europa Conference League) must adhere to UEFA’s rules and those of their domestic league. UEFA’s introduction of its most recent set of regulations, named the UEFA Club Licensing and Financial Sustainability Regulations (FSR), replace its old rules, UEFA Financial Fair Play Regulations (FFP), and represent UEFA’s first attempt at applying an effective salary cap on European clubs.?

FSR incorporates all aspects of player spend (wages, agent fees, and player trading) and prohibits clubs from spending above a defined ration of player spend relative to adjusted revenues.? FSR is being implemented in a staged approach to give clubs time to adapt; last year the limit was 90% of revenues, but have tightened to 80% this year, and 70% for next year and beyond. One of the UEFA executives responsible for designing these regulations noted that the rules are intended to be a more “sophisticated … complex, and complete” set of rules that incorporated P&L, balance sheet, and cash flow.? The goal is to promote a sustainable “ecosystem at large.”

As you can see in this week’s chart of the week, wage growth (7.4% CAGR from 2014 – 2024) among the top 5 European leagues (i.e., Premier League, La Liga, Bundesliga, Serie A, and Ligue 1) has consistently outstripped revenue growth (5.5% CAGR). However, clubs have already begun to exhibit more conservative spending behavior.? In the January transfer window, spending halved across the Big 5 leagues. Interestingly, this year, revenue growth (~5%) across the elite European teams across the Big 5 is on track to outpace wage growth (~1%), and we expect that to continue as clubs seek to comply with the new regulations.