European Clubs are Grossly Undervalued Assets

Insecurity and under-achievement aren’t conditions one would normally associate with the upper-echelons of European club football. Indeed, with every passing year, the financial and commercial fortunes of the continent’s elite clubs grow stronger. Both on the pitch and off, “power” is being concentrated in hands of a coterie of clubs that are, in a very real sense, becoming bigger than the leagues in which they play.

But despite the exorbitant riches, and unrivaled notoriety, generated by the European game, the continent’s big guns are, for the most part, financial minnows when compared to their American counterparts. According to Forbes‘ 2017 ranking of the most valuable sports teams in the world, European soccer clubs make up just seven of the top 50. Manchester United, once the world’s undisputed No.1 sports brand, is alone in the top three (and some way off the top-place Dallas Cowboys), and Bayern Munich is the only representative east of the Rhine. More alarming still is the fact that the lowly Cleveland Browns sit above Chelsea in the rankings, and Liverpool are nowhere to be seen (we can expect that to change in 2018, however). Meanwhile, on-court failures like the LA Lakers and NY Knicks sit proudly in the top 10.

High vs. Low Concentration

The absence, however, of the likes of Liverpool and Paris Saint Germain — and not to mention the fact that Chelsea and Arsenal are some way off breaking into the top 20 — suggests that something more than brand-power is at play here. Globally, the elites of European soccer have cultivated instantly-recognisable “mega-brands” that are just as prominent in Bangalore as they are in Basingstoke. In this area, European clubs are challenged only by the New York Yankees and Boston Red Sox — the two near-religious institutions of another global sport.

Despite their riches, NFL franchises do not have the global brand power of the world’s preeminent soccer and baseball organisations. With the isolated exception of the famously ‘sports-mad’ United Kingdom, the game’s popularity has been largely confined to North America. Though this is beginning to change, the NFL’s commercial success is far more the product of its unique structure than it is a consequence of its widening global reach. And it’s here that the money-men who run European soccer can learn an important lesson.

More prosaically, the NFL has become the world’s most opulent sports league by virtue of its monopoly status. Its teams — which include some of the biggest brands in North America — are concentrated into a single entity, meaning that the league is well represented in every population centre in a country of over three hundred million people. The existence of a salary cap and draft system also ensure that the league remains highly competitive, and, for the most part, unpredictable. All in all, it’s the perfect cocktail for commercial sports success.

European football has evolved in a manner that contrasts sharply with the American experience. The great European brands are siloed in antiquated domestic leagues that are failing to satisfy their financial ambitions. Indeed, the landscape of European soccer mirrors college football far more than it does the NFL — and, in that sense, represents a distinct commercial failure.

UEFA: An Architect of its Own Demise

European club executives know all this, as do the game’s regulators at UEFA. More importantly, the latter knows that the former knows — and the former knows that. Terrified by the prospect of a NFL-style super league emerging in Europe, UEFA has done everything in its power to placate the game’s giants — and the executives who run them. Ever since AC Milan faced Napoli in the first round of the 1987 European Cup — and Silvio Berlusconi famously cried foul — the structures and institutions that govern the European game have been geared toward making the rich richer. This, in short, is why the Champions League has evolved to have very little to do with champions, and everything to do with bolstering the fortunes of Europe’s mega-brands.

The problem for UEFA is that by using the Champions League to feather the nest of game’s elites, it has been slowly digging its own grave. Not only has the (rather exclusive) expansion of the UCL debased the continent’s smaller leagues, it has also cheapened Europe’s top domestic competitions. By making the UCL ever more exclusive, UEFA has created the top-tier that now dominates the game, but even more significantly, it has shown them the way forward: namely, High Concentration.

Thus, the creation of a breakaway European “super league” has become an inevitability, and UEFA’s actions are a big reason why. Just as influential, however, has been the flourishing of the NFL under its high-concentration business model. European club executives know full well that the continent’s top clubs ought to enjoy financial valuations that exceed those of the 32 members of the National Football League. The global reach of soccer is simply too extensive. Yet, as long as the likes of Bayern Munich, Chelsea, Juventus, and Barcelona exist in constraining domestic leagues, that restrict their chances to play in marquee games, they will continue to fall short of realising their full  financial potentials. No business (and they are, ultimately, businesses) would remain committed to an organization that harms its bottom-line.

The European super league will happen, and when it does, Forbes’ rankings will take on a more international character. As for those European clubs that sit outside the upper-echelon? We’ll save that question for another day — most readers, I imagine, won’t like the answer.

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