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Business

Bundesliga clubs need to score profits abroad

Crowded stadiums, millions of TV viewers, strong merchandise sales - what more could soccer clubs in the German Bundesliga possibly want? The answer is simple: still more money to boost international competitiveness.

Soccer ball, shoes and a pile of cash

The latest Deloitte study shows European soccer is big business

Four German clubs were listed among the annual Deloitte ranking of Europe's 20 richest clubs: Bayern Munich, Hamburg, Schalke and Stuttgart.  Although the German Bundesliga's first and second-division clubs achieved record revenues of 2.1 billion euros ($2.9 billion) last season, they also posted their first combined loss since 2003.

So what do these stats tell you? German soccer is as popular as ever - but it's never been more expensive. And the Bundesliga, frankly, is peanuts compared to the Premier League in the UK or even Spain's La Liga.

Seven British teams made it into Deloitte's top 20 moneymakers, but net debt in the Premier League is 4 billion euros, followed closely by the Spanish league's 3.5 billion euros.

One of the main reasons why soccer has become so costly goes to the very heart of the sport itself: competition. Winning clubs compete for gifted players who come at a price. And those prices have gone nowhere but up in recent years.

Chelsea's Fernando Torres controls the ball during the English Premier League soccer match between FC Chelsea and FC Liverpool

Chelsea paid Liverpool 50 million pounds for Spanish superstar Fernando Torres

Transfers and salaries

The most recent example: Russian billionaire Roman Abramovich, who owns the London-based soccer club Chelsea, paid 50 million pounds this month to buy Fernando Torres from Liverpool, smashing the record for transfers between British clubs.

Clubs with rich owners like Abramovich - and there are several in Europe - continue to spend millions on transfers and somehow cope with the hefty losses. Most other clubs, however, are plunging into debt as they try to keep up, living far beyond their means.

The numbers released by UEFA, the governing body of European soccer, speak for themselves: Although the continent's top divisions posted a 4.8 percent increase in income to 11.7 billion euros in 2009, their costs rose 9.3 percent to 12.9 billion euros, resulting in a loss of 1.2 billion euros - nearly twice as high as the year before. Salaries accounted for nearly two-thirds of clubs' costs.

Alarmed by the clubs' growing wages and spiraling debt, UEFA plans to introduce a new Financial Fair Play scheme in the 2012-13 season to usher in a new era of financial restraint in European soccer.

In a nutshell, the rules require soccer clubs to eventually balance their books and ensure their expenditures don't exceed revenue - or be banned from international competitions such as the Champions League and the Europa League.

World's most popular sport

The rules shouldn't prove an obstacle for most German clubs, experts say.  Thanks to the strict licensing policies of the German Football League (DFL), Bundesliga teams have been forced for years to comply with certain financial criteria to receive a license, according to Stefan Ludwig, director of the sports business group at the Munich office of professional services company Deloitte.

Munich's captain Mark van Bommel holds the cup during the winning ceremony for German Soccer Cup final in Berlin, Germany, Saturday, May 15, 2010

Bayern Munich's sporting success is built on financial stability, not debt

"Not much will change for the Bundesliga," Ludwig told Deutsche Welle. "The DFL licensing rules have helped."

That said, German clubs still need to make more money to compete successfully in Europe. They could learn a lot from Bayern Munich, which is considered by many experts to be one of the best financially managed soccer clubs in Europe.

The tradition-steeped club, with a record revenue of 323 million euros last year, is ranked fourth in the Deloitte Football Money League survey. It has been steadily inching closer to Spain's Real Madrid and FC Barcelona, in first and second place with 438.6 million euros and 398.1 million euros respectively, followed by Manchester United with 349.8 million euros.

The other three German clubs in the survey’s top 20 are Hamburg in 13th place, Schalke in 16th place and Stuttgart in 19th place. Borussia Dortmund and Werder Bremen dropped from 17th and 18th to 22nd and 28th respectively.

Some analysts believe Bundesliga teams in the first division could struggle to grow revenue significantly through traditional sales channels such as tickets, broadcasting rights and merchandising.

"We're seeing some saturation in Germany," said Tobias Kollmann, an economics professor at the Duisburg-Essen University who also heads up an online football investment exchange called football501.de. "You can only sell as many tickets as there are available seats, and they're pretty full."

A wide-angle view of Schalke's home stadium

Stadium attendance in Germany is high, but club revenues could be higher

Expand abroad

Kollmann sees potential for growth beyond German borders. "The Bundesliga needs to expand abroad as the British and Spanish clubs have done," he told Deutsche Welle. "It needs to develop fans who want to buy merchandise and watch broadcasts. The DFL is already pushing this."

Selling broadcasting rights to pay-TV companies, such as Sky, is a big moneymaker in several soccer nations, including the UK, Spain and Italy. But pay-TV has yet to take off in Germany.

"There is no pay-TV culture here," Deloitte's Ludwig said. "We have plenty of free-TV channels and because we already have to pay a general fee to watch television, a lot of people don't want to subscribe to a service on top of that."

Thomas Fuggenthaler, an analyst covering financial aspects of the Bundesliga at the Munich office of Ernst & Young, points to another problem with pay-TV in Germany. "If you want to push pay-TV in Germany, exclusive content is necessary," he told Deutsche Welle.

"From a pay-TV perspective, you can't show free-TV viewers highlights of the games right after they've finished as is the case in Germany. If you wait a day or so, you'll create demand. But this is a very political issue."

People watch a wall of televisions showing a soccer game

German clubs would like to see more revenue from television broadcast rights

Double broadcasting revenue

Unquestionably, broadcasting revenue makes a huge difference to a league's finances and thus its overall competitiveness. Britain’s Premier League is a shining example. The league, viewed by many today as the crème de la crème of world soccer, generates 300 million euros a year in revenue from the sale of international broadcasting rights, in addition to the 800 million euros it draws from domestic rights, according to Ludwig.

By comparison, the Bundesliga makes approximately 30 million euros from international broadcast sales and about 400 million euros from domestic receipts.

"In theory, there is potential growth in the international sales but that means you have to squeeze out other competitors and take something away from them," said Ludwig. "That could take time and there is no guarantee."

Earlier this year, Bayern Munich chairman Karl-Heinz Rummenigge said the money paid to clubs from broadcasting rights should be "doubled in the medium term," arguing that Italian clubs already receive twice as much.  Rummenigge, a talented striker in his day, has been demanding more cash from TV rights for years, but has yet to hit that goal.

Author: John Blau
Editor: Sam Edmonds

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