Sports Industry: Who’s Making The Money?

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Unsurprisingly, Football (or soccer, if you prefer) is the highest paid team sport. Out of the teams with the top ten average weekly pay, seven were European clubs. Over the past 12 months, Barcelona’s weekly pay has increased 10 percent to an astonishing USD $8.7 million a year. Manchester City’s average salary went up 26 percent moving them from 10th to third overall.

England’s top paid athlete is perhaps surprisingly not a footballer, in fact, boxer David Haye is the highest paid athlete in the UK having earned a whopping USD $24 million for his fight against Wladimir Klitschko.

The NFL’s highest paid player last year was Carolina Panthers player Charles Johnson. After a massive signing bonus and front-loaded deal, Johnson netted USD $37 million taking him ahead of the likes of Tom Brady and Adrian Peterson as the Sport’s highest paid star.

Italy’s highest paid athlete races on two wheels in the form of Valentino Rossi, a MotoGP racer for Ducati. Rossi earned USD $20 million in 2013 to establish himself as the country’s highest paid sportsman.

In the Athletics World Championships in 2013, the prize money was believed to be in the region of USD $7 million. Winning a gold medal would earn an athlete USD $60,000 with an additional incentive being USD $100,000 to any athlete who breaks a world record, providing they clear the usual anti-doping procedures.

It’s interesting to see the difference in salaries between fringe sports stars compared to the mainstream stars. Phil Taylor earned £950,000 as a darts player in 2013 where as Sean Rash collected USD $140,000 in bowling prizes.

With strong financial backing from owners becoming more and more frequent, athletes wages will only increase due to the fact that there is no cap on the money an athlete can earn. Sponsorship deals and win bonuses are other ways athletes accumulate money. In 2012, Manchester City’s triumphant Premier League winning squad received a £6.2 million bonus shared between twenty-four players.

Chelsea Football Club owner Roman Abramovich is one of the richest men in football and it’s no surprise to see Chelsea’s success with the amount of money he has spent. Since taking over the club in June 2003, Abramovich has spent in excess of £2 billion of his considerable fortune on the west-London club. Having signed many world-class players since arriving at Stamford Bridge, the Chelsea owner clearly expects the club to be competing for major trophies. Despite spending vast amounts of money, Abramovich will perhaps see this as a long-term investment (as well as a passion project) and something that in time, could prove to be lucrative. Abramovich did not make his millions abruptly, he started with small businesses which soon developed into companies and he eventually became a millionaire and beyond. Chelsea bought Juan Mata for £23 million three years ago and have recently sold the player on for £37.5 million. Mata was a useful signing for Chelsea and was a good servant to the club but when the time came for Mata to move, his value had increased £14.5 million which turned out to be a great piece of business.

The Indian Premier League (IPL) is a Twenty20 cricket tournament in which eight franchises compete against each other with significant prize money. There is an annual auction in which teams receive the opportunity to bid for players and it is not uncommon for a player to be sold for in the region of USD $750,000 – $900,000.

A huge source of revenue for IPL franchises is shared TV broadcasting rights. Broadcasters have acquired the global broadcasting rights for the next 10 years at a cost of well over USD $1 billion. A large chunk of these proceeds is equally divided between each IPL franchise with the rest going on prize money. The proceeds from sponsorships towards the IPL go into a central pool and a sizeable percentage of that is also distributed equally to each IPL franchise. Merchandise sales is another way a franchise will make money along with the added incentive of a spot in the Champions League Twenty20 competition for each of the top four teams at the end of the IPL which will, of course, create more broadcasting rights, more sponsorship deals and quite possibly, more merchandise sales. In 2010, the IPL was valued at USD $4.13 billion compared to $2.09 billion in 2010. Winning the IPL is certainly rewarding for franchise owners with the winners receiving 100,000,000 Indian Rupee’s, which is the equivalent to USD $1.5 million. Including sponsorship and broadcasting rights with prize money, the IPL certainly has an opportunity to be a highly profitable enterprise.

Cristiano Ronaldo is the world’s highest paid footballer, earning in the region of USD $27 million a year. This may seem a ludicrous amount of money but Ronaldo’s record speaks volumes. Since joining Real Madrid, Ronaldo has netted on average once a game, a remarkable record, which certainly will not be matched by many. In contrast, a league two footballer in England would be expected to earn around £50,000 a year, where as a league one footballer would earn around £90,000 with Championship footballers expected to earn around £220,000 a year. On top of these wages, there will again be win bonuses as well as sponsorship but the difference in wage between those playing at the top level and those playing at a lower league is considerable.

In NBA, the salary of players is also high. Number one ranked Kobe Bryant, who plays for Los Angeles Lakers, earns around USD $30 million a year. Jerome James from Chicago Bulls is ranked 100th in the world and is reported to have earned USD $6 million last year, a sizeable difference from world number-one Kobe Bryant.

Who makes money out of well-paid athletes? Of course when a club are prepared to spend such a large amount of money on one player, they see it as a long-term investment. Certainly in football, when a big team signs a world-class star, the money made on merchandise sales is astonishing. It is reported that Real Madrid generated in excess of USD $135 million from shirt sales alone in the first year Ronaldo was at the club. The same applies to David Beckham and Real Madrid, who sold one million shirts in the first year alone. Big players will also attract bigger crowds, which of course will mean increased ticket sales. How many Arsenal fans purchased tickets for a game this season since learning of the signing of Mesut Ozil?

Holding an International event could turn out to be very beneficial. The 2008 Beijing Olympics showcased the rising commercial power and technological prowess of China. Despite offering significant potential benefits to hosts, the economic record of hosting international events is highly uneven. The 1976 Summer Olympics was a financial disaster for Montreal, leaving that city with USD $2.7 million debt that took 30 years to retire. The 2004 Athens Games went five times over budget and is considered the harbinger of Greece’s current financial woes.

Brazil is not only the 2014 World Cup host, but also hosts for the 2016 Olympics. There has been plenty of controversy surrounding the decision to allow Brazil to host the World Cup. All twelve of the selected stadiums have to either be renovated or constructed and the costs are already considerably over budget. The Maracana stadium is currently undergoing a USD $600 million renovation. If construction/renovation costs were to balance with the expected generated revenue, then each spectator would have to spend roughly USD $1000 a game. The total prize money in this tournament is USD $520 million from USD $411 million in South Africa four years ago.

The Brazilian Government has commissioned several studies on the economic impact of the World Cup which estimated that the tournament would add anywhere from USD $70 to $110 billion to Brazil’s economy in a ten-year period. Some of this income will come from a boost on tourism and from the positive impact of infrastructure projects that are triggered by the World Cup.

Bernie Ecclestone is regarded to be single-handedly responsible for the global success of Formula One. From modest beginnings selling motorbike parts, Ecclestone has become one of the richest and most influential men in the world of sport. Becoming chief executive of the Formula One Constructors Association in 1978 set in motion a chain of events which led to Ecclestone not only being head of the sport but an immensely rich man. The turning point was when he united the teams securing global TV rights, setting up Formula One promotions and Administration (FOPA), and splitting TV revenue between the teams with FOPA providing the prize money in return.  With sheer determination, shrewdness and a remarkable eye for business opportunities, Ecclestone has made millions from Formula One and although he has stepped down due to legal prosecution in Germany, he’s unlikely to be left scraping together loose change at the end of the trial.

Investing in big sports clubs can be viewed as a massive risk. To this day, money and power are becoming more and more present and with investors investing millions upon millions of dollars, sport is really turning into a ruthless industry with the bigger clubs with powerful owners such as Manchester City and Chelsea threatening to run away with it. Managerial departures are also becoming ever more frequent and this can only be because of owners desperation to see quick results to their investments.

Coventry City Football Club is an example of where investing heavily can be a big risk. In 2001, after surviving a few near relegations, they decided to invest in players in a bid to improve their league position. This decision would prove disastrous however as in 2001, Coventry were relegated when the club quite frankly didn’t have enough income to support the amount spent on players. Other similar cases have led to a wholesale review of how football clubs in the EPL control their finances with strict punishment from the FA for any irregularities.

Of course it’s risky but there is reward. The likes of Roman Abramovich and Sheikh Mansour bin Zayed Al Nahyan, Chelsea and Manchester City owners respectively, have acquired and developed their assets but there are cases of owners rushing in too quickly, splashing the cash but having nothing to show for it.

Daniel White

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