Daniel Martin, Group Chief Financial and Operations Officer of the Al Jazira Sports Club, alumnus and currently professor of the Master in Football Business in partnership with FC Barcelona, talks to Johan Cruyff Institute about the specialized area of football finance, where the money flows in and out and how it is possible for it to be distributed in a sustainable manner. “Historically we have seen some clubs have allocated one hundred percent of their revenue to player wages and that is not logical,” he says.
In the football,the impact of management decisions permeates across the entire financial ecosystem. From the money involved in the player signings and transfers, to the television rights or the commercial activity generated by the clubs themselves. But who is richer is not the one who has more, but the one who best knows how to manage their capital. And on this subject, Daniel Martin, group chief financial and operations officer at Al Jazira Sports Club, alumnus and currently professor of the Master in Football Business in partnership with FC Barcelona offered by Johan Cruyff Institute, has much to say. “Historically we have seen some clubs have allocated one hundred percent of their revenue to player wages and that is not logical,” he says.
Daniel is an ICAS chartered accountant with more than 15 years of experience, including a training period at one of the ‘Big 4’, the international consulting firm Deloitte. His first job in football was as group financial controller of Celtic Football Club. He subsequently held senior financial and general management positions at global brands such as Etihad Aviation Group, Armaguard and Jumeriah Group, before returning to the football industry. In this interview, he talks about the specialized area of football finance, where the money flows in and out, how it is possible for it to be distributed in a sustainable manner, and what regulators, clubs and national leagues are looking for, economically speaking, with the proposed changes in the competition model of the future.
What are the differences between being in charge of a club’s financial area and doing so in a multinational company?
In a football company, the expectations from external stakeholders are more significant, and what I mean by that is that the fans don’t really value or appreciate positive financial results, a strong balance sheet, whereas in corporate multinational life there are established metrics that businesses see as successful. So that is something that in the management of football clubs, particularly in the financial area, you need to adapt and manage expectations because of the conflict in what success metrics are.
Talking about football is talking about billions. What is the biggest source of income for football clubs?
In terms of the biggest source of income, traditionally there are three main revenue streams: the match-day revenue, the broadcasting revenue and the commercial revenue. On top of that, you have player trading activity as well which isn’t classed as revenue, but can be an additional source of income. To what extent these revenue streams are significant depends on the league and jurisdiction that a football club is in.
What about the biggest leak of capital?
Players’ wages. The good metric is about 50% of your revenues, but historically we have seen in the past prior to FFP regulations, particularly in Europe, how in some clubs they account for over a hundred percent of their revenues which isn’t logical, but it’s still the main cost in any football club business.
222 million euros was the most expensive transfer in football industry last summer. Do you think the transfer market is nowadays a sustainable model?
We obviously talk about €222 million, that’s the minority, but clubs in general need to look at how player trading activity can be a key driver in the business for sustainability. If we think about the key components there are transfer fees, player wages, amortization and gain/loss on disposal. These are key costs that affect the P&L and the balance sheet, but I think with financial fair play coming into equation, more clubs are seeing player trading and successful player trading as a key component to their sustainability.
“The more revenue you generate, the more goes through the system in terms of wages”
Football has experienced significant wage inflation in the last decade. In your opinion, is it a trend that will go up?
The more revenue you generate, the more goes through the system in terms of wages. So, in answer to your question, as increase in revenues and particularly broadcasting rights continue to be maintained, I see in the short term the wage inflation continuing to increase.
Football agents are some of the most powerful people in the game and FIFA is trying to regulate their activity and implement new rules by 2020. How do clubs value theses changes in the regulation?
From a finance individual working in the club’s perspective, I see as a valuable initiative from the regulators. Football agent regulation in the past has not been consistent throughout jurisdictions and giving the international nature of transfers these days it’s imperative that we try to implement a universal system, so we can have accountability and transparency.
The money received from the sale of broadcasting rights has been the main source of income for the main European leagues. How can the proliferation of OTT services influence the market?
That’s something we need to wait and see. Obviously, the trend for consumers and the profile of the new fan base is more working to an OTT service. I think at the moment there is no real major revenue generator or driver in this form; obviously Amazon, Netflix in the last cycle of the EPL they came into play, but not as big perhaps as initially commentators thought, but maybe the trend is going forward.
Premier League is probably the richest in the football industry. What are they doing better that other leagues can learn from?
I think what they did in the last five to ten years was a commercial strategy that they put in place and particularly internationally. The big advantage that the Premier League has is its historical nature or the traditions involved and the amount of participation at professional level. In the UK, in general, you look at the level of professional clubs. Having said that, LaLiga is obviously implementing a very successful strategy at the moment and in the next five to ten years it will probably look to challenge the Premier League.
“You can have sustainability regardless of whether you win or lose”
What are the unique challenges associated with football with respect to financial sustainability?
I think there’s a responsibility to allocate resources as efficiently as possible to try and achieve sporting objectives. But the key for sustainability is strong governance in place throughout the club combined with a set of business plan assumptions that don’t rely on sporting success, and what I mean by that is you can have sustainability regardless of whether you win or lose.
UEFA, clubs and national leagues have to define a new competition model for the future. Financially speaking, what do you think would be the best?
There seems to be a trend for the elite clubs to try and break away and become even richer, so I think, in terms of for the wider game, it is trying to ensure an equitable distribution of some of the distribution rights. I think what you’re seeing now is a top six to eight clubs in Europe, the same teams competing at a top level every year, but from a fan’s perspective having that competition would rely on a more equitable distribution of funds.
Do you understand the complaints of the national european leagues about the new SuperLeague Project that UEFA and ECA are trying to implement?
Yes, I understand the complaints. I think that comes down to the fact that all the clubs and leagues are trying to protect their own interests and I’m eager to see how that one develops. In the Middle Eastern and in the Asian region there is a separate private cup, the Arab Club Champions Cup, which has been funded separately, so that’s maybe a model that they could look at as they try and implement something in Europe.
What are the challenges of football in the Middle East vs Europe?
I think the main challenge is in governance; the UAE league, for example, is maybe not as mature or as evolved, certainly as the main leagues in Europe. There’s plenty of passion for the sport, obviously Qatar will be hosting the World Cup in 2022, so the Middle Eastern region is fully behind developing sport, but the main challenges are in governance and trying to introduce the concepts of sustainability, particularly from the financial perspective.
Football Business in partnership with FC Barcelona
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