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The financialization of European sports clubs (EN/FR)

-----French Version Below-----

Sport and money have long had a complex but necessary relationship. Since the first ancient Olympic Games, sport as a spectacle has required the provision and use of human, material and, above all, financial resources. The organisation of such sporting events already required financing and their exposure to the public brought in significant financial revenue.

Nowadays, sport has become a content-generating machine. Especially at a time when streaming and on-demand services are exploding, sports leagues have leverage power to negotiate media rights, which naturally appear to be more and more profitable. This is why a multitude of investors are increasingly interested.

But investing in sport is not just about making a profit. It has other advantages that give it a prominent place in investors' portfolios.

I - Why are investors interested in sport?

Several investment funds, mainly American, have recently taken stakes in clubs on the Old Continent. In France alone, SM Caen and Toulouse FC have recently been acquired. Indeed, European sport is attracting more and more economic players, including investment funds. How can we explain such a craze for sports clubs, and particularly football clubs, among investment funds in recent years?

To understand this craze, it is necessary to shed some light on the strategy of investment funds. The reason for making such an investment is undoubtedly the desire to diversify an asset portfolio. Thus, the purchase of sports clubs is part of a series of strategic operations aimed at investing cash in operations that could offer the best low risk/profitability ratio.

Thus, in the context of a still latent health crisis with endless twists and turns and whose economic fallout is still unclear, football clubs (mainly) appear more than ever to be a relatively stable safe haven. Football clubs appear stable because in the modern history of the sport, very few professional clubs have disappeared completely.

A final argument in favor of European sport for investors is that clubs, and particularly European football clubs, are currently undervalued compared to American clubs. In the US, the resources needed to invest in most clubs are much greater than in Europe. This explains the increased flow of American money into European football. Investors believe that they can significantly increase the value of their new acquisition by importing methods that have worked in the US. The trend is further reinforced by the fact that global football consumption has grown strongly in recent years.

The sale of sports equipment and urban dressing room/sportswear items, which form the core of each club's sports merchandising, is a flourishing business. This commercial activity contributes significantly to the revenues of some of the world's leading clubs and sportsmen: it is estimated that the global sports merchandising market exceeds 20 billion euros, and that it is expected to grow by 5% in the coming years.

The Covid-19 pandemic has seriously weakened the cash flow of many European sports clubs. The question then arises as to how such a penetration of multiple investors from all horizons in the European sports industry could help clubs.

II - How do these investments help clubs?

Over the last 20 years we have seen the amount of money spent on football transfers reach record levels. As a reminder, the biggest transfer to date is that of Neymar from FC Barcelona to PSG for the sum of 222 million euros. This race for the best players by European clubs is of significant importance for their survival for two main reasons. The first is obvious: attracting the best players usually improves the team's performance in the various leagues. Mechanically, because all clubs try to emulate this strategy, prices rise. The selling clubs can therefore make capital gains on these transfers, which makes them a source of financing. The second reason is the economic benefits of merchandising. As mentioned above, the sale of shirts and sports equipment is an essential source of income for clubs. Investing in players with a high profile therefore increases merchandising revenues. These investments are therefore crucial, and they must be financed. These inflows of capital from investors allow certain clubs to access financial resources that they did not have before.

III - The risks and pitfalls of subjecting sport to a purely financial logic

The growing importance of financial and economic factors in the performance of sportsmen and women is not without risk. In principle, sport is governed by principles of fair play, where victory is only possible through the power of talent, but we are in danger of seeing these principles deviate. Formula One is a good example of this correlation between financial power and sporting performance. For years, the championship has been dominated by the teams with the biggest budgets, capable of producing state-of-the-art cars. In order to address this problem, the FIA decided to cap the budget of the teams in order to limit the excesses. Aware of these problems, UEFA has also established financial fair play rules. These rules prohibit clubs from spending more than they earn. For example, it is no longer possible to use the wealth of the owners of certain clubs as a source of funding, as was the case with PSG when it was bought by the Qataris. The same applies to rugby, where the English Premiership Rugby league has capped the amount that can be allocated to players' salaries. The Saracens club was relegated to the second division of the championship in 2020 for having breached this ceiling.

IV - Conclusion

The financialization of sport is an inevitable phenomenon. While it can have positive effects on the development of certain clubs and contribute to the growth and development of a sport, it is important to be aware of certain abuses and the excessive concentration of economic power. The various sports federations, aware of the problem, have already taken measures to better control this phenomenon. This shows how important it is for them to remain attentive to developments in their sports, in order to provide a relevant framework and preserve the quality of competitions.

-----Version Française-----

De la financiarisation des clubs sportifs européens

Le sport et l’argent entretiennent depuis très longtemps des rapports complexes mais nécessaires. Dès les premiers Jeux Olympiques antiques, le sport en tant que spectacle, nécessitait une mise à disposition et une utilisation de ressources humaines, matérielles mais surtout financières. L’organisation de tels évènements sportifs exigeait déjà un financement et leur exposition au public apportait des recettes financières non négligeables.

De nos jours, le sport est devenu une machine à générer du contenu. En particulier à l’heure où les services de streaming et streaming à la demande explosent, les ligues sportives disposent de puissants leviers pour négocier notamment les droits médiatiques, qui naturellement apparaissent de plus en plus rentables. C’est pourquoi une multitude d’acteurs investisseurs y portent un intérêt croissant.

Mais l’investissement dans le sport n’a pas pour seul but de dégager des profits. Il possède d’autres avantages qui lui octroient une place de choix dans le portefeuille des investisseurs.

I – Pourquoi le sport intéresse-t-il les investisseurs ?