Madrid wins, but football is a law unto itself
- Real Madrid play city rivals Atletico in UEFA champions final Saturday
- Football finances exploding as new TV deals come into place
- Year of the underdog suggests new order beginning to emerge
- Football still an unattractive sector for investors
Real Madrid fans were celebrating in Lisbon in 2014 when they beat
city rivals Atletico, but who will emerge victorious on Saturday? Photo: iStock
By Martin O'Rourke
It's going to be quite a day in Milan Saturday as the city of Madrid decamps en masse in a blanket of white interspersed with blood-red stripes. The atmosphere will likely be intoxicating, on the edge and, as tribal warfare often does, ready to spill over into battle over the slightest pretext.
Real Madrid meets its bitter city rival Atletico in a match that will revive memories of their pulsating encounter in 2014 when Atletico's grasp was prised from the trophy at the death by a late Real equaliser that enabled Los Blancos to go on to win by a flattering 4-1 scoreline in extra time.
To the victor goes the spoils and in the year of the underdog (is there a person on this planet who hasn't heard about Leicester City's logic-defying English premiership triumph?), Atletico will probably be fancying its chances of picking up the €55 million prize money on offer as well as the glory and kudos. And of course, there is also the TV, marketing and attendance revenues which all add up to a veritable bonanza.
Football isn't big business anymore. It is huge. Forbes listings of the top 20 global clubs for 2016 lists Real Madrid at the top of the tree with a valuation of $3.645 billion, just ahead of Barcelona at $3.549bn, Manchester United's third-place $3.317bn, Bayern Munich's $2.678bn and Arsenal's fifth-placed $2.017bn.
Atletico Madrid meanwhile comes in at a respectable 15th even if its $633 million valuation pales into insignificance alongside the top five. It is nevertheless a 45% rise on the 2015 valuation and fairly reflects the astronomical rise in values among the top 20.
Of that 20, West Ham United is the fastest riser having grown some 76% year-on-year to hit revenues of $542m and take 17th on the list. The East London club owes its good fortune to a happy set of circumstances allied to good management that have allowed it to become sole resident of London's Olympic stadium which has been almost entirely dormant since 2012.
The top 20 support a narrative for a sector that, as a whole, is growing at an exponential rate and will continue to do so as fresh TV money comes into the play.
The football deal for the English Premier League for 2016-19 came to a whopping £5.136bn, up 71% on the previous deal and coming in at a not-too-shabby £10.19m/game. Little wonder then that the playoff final for the last promotion berth into the Premier League that takes place this Sunday between Hull City and Sheffield Wednesday has earned the moniker of the richest game in football with some £200m on the table for the winner, once all the various knock-on benefits of being among the elite are added in.
Speculation surrounding managerial appointments also have the ability to move the needle quite dramatically as this week's events at Manchester United have shown following the botched dismissal of manager Louis Van Gaal with his successor, Jose Mourinho waiting in the wings.
Manchester United's share price gyrates around the manager change speculation
Paying the ultimate price for failure to qualify for next season's European champions league (the richest club competition in the world for which the two Madrid clubs will be fighting this weekend), the market clearly liked what it saw and liked even better the prospects for the club under Mourinho who's appointment is likely to be confirmed by the end of the week.
Yet, all this focus on the share price and earnings is a far cry from a bygone ear when, before the lifting of the maximum wage in 1961 in England, the bond between player and supporter was inextricable, a player's warm up was the walk to the stadium and the pervading sense of working-class hero embodied by the likes of Stanley Matthews, Hungary's Ferenc Puskas and Portuguese legend Eusebio was the norm through the leagues and countries.
With salaries of the top stars reportedly in the £300,000/week category, that is hardly surprising. And yet, despite such vast sums of cash sloshing about the industry, football remains something of a no-man's land for investors. Can that change?
"Not unless the rules are changed to be similar to those you have in US sports", says Saxo Bank's head of equities strategy, Peter Garnry. "For instance, a cap on player salaries would instantaneously change the investment dynamics as salary inflation would likely grow slower than revenue."
But for every Dortmund, there is a Leeds United (my club) and a Fiorentina, both proud clubs that came perilously close to extinction. Garnry points out that their is inherent volatility in the sector that legislates against throwing your hard-earned cash at the relatively limited number of football clubs that do enjoy a listing.
"Historically it has been a very poor investment and I see nothing that changes this going forward," says the Saxo equities chief. "The main reason is that European football with no economic rules leads to a “winner’s curse” where clubs are increasingly paying and offering larger and larger amounts for quality players".