December 29, 2017 / 11:06 AM / 2 months ago

Breakingviews - European soccer’s spending splurge will intensify

LONDON (Reuters Breakingviews) - Soccer fans have found a topic as contentious as refereeing decisions: eye-watering transfer fees. The 222 million euros that Paris St Germain paid Barcelona for Brazilian star Neymar in August - a sum described by Arsenal manager Arsène Wenger as “beyond rationality” - may not be surpassed in 2018. Nonetheless, clubs will have good reason to open their cheque books even wider.

Talk of a bubble is understandable. The 20 clubs in England’s Premier League splashed out 1.4 billion pounds on players in the summer of 2017, according to accountancy firm Deloitte - almost a quarter more than in the previous year. FIFA, the sport’s governing body, reckons clubs worldwide spent $4.7 billion between June and the end of August, almost equal to the whole of 2016.

Wasteful spending, meanwhile, seems to be rife across leagues in England, Spain, Germany, Italy and France. Consultants at 21st Club reckon just 56 percent of the players who became their club’s most expensive signing went on to become a “core” member of the squad, which means starting more than half of matches in the subsequent season.

But the largesse is grounded in commercial logic. The Premier League’s gross player spending in the summer was 31 percent of estimated full-year revenue. That’s not much higher than the average of 27 percent since 2003 - including the more modest amounts clubs spend in January. Utilities and entertainment-software companies deploy similar proportions of their sales on capital expenditure, according to New York University data.

Income from broadcasting rights, meanwhile, keeps soaring. Media and telecoms groups have long been locked in a battle for exclusive TV content. Some combatants, like Britain’s BT and Altice in France, are fighting with diminished resources. But tech giants, eager to attract eyeballs, may open a new digital front. Amazon recently beat Sky for the right to broadcast ATP World Tour tennis matches, while Facebook made an ultimately unsuccessful $600 million bid for an Indian cricket tournament.

The prospect of deep-pocketed tech giants entering the battle for soccer rights is not lost on clubs: Manchester United executive Ed Woodward said on a recent call clubs would “welcome the interest”. That gives them little reason to slow their spending splurge in 2018.

Breakingviews

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