Economic Interests

If you owe the bank £100, that's your problem. If you owe the bank £100 million, that's the banks problem.

When will the football bubble burst?

There have been a lot of economic bubbles, the most famous including at the turn of the century the dotcom bubble which promptly burst, and also the recent housing bubble which burst was a major contributor to the credit crunch. An economic bubble is where a certain market experiences increased sales at prices that are increasingly inflated. Some suggest that there is a current higher education bubble with tuition fees showing a steep increase over the last few years. But surely the most obvious example of a current economic bubble is the Football market.

Football enjoys a worldwide audience with demand for European football (and especially the English Premier league) high in Asia, Africa and South America. The missing continent of America have never been hooked like their counterparts, with some suggesting the lack of adverts mean there isn’t enough money in it for them. This sort of demand has seen incredible amounts of money flood into football, with the combined revenue of clubs in England, Germany, Italy and Spain reaching €6,896 million in 2010. The incredible thing is that it didn’t burst when the world was experiencing a global recession; it has resisted the pulls of the market and is still receiving millions from fans who can ill afford it. Leading the football leagues in revenue is the UK’s Premier league, who acted smartly to share TV rights equally between each team which has seen the league as a whole gain global attention. The same can’t be said in Spain, where teams are allowed to negotiate TV deals themselves and inevitably Real Madrid and Barcelona receive the lion share.

a graph found on shows how Spanish TV rights are based purely on popularity (Biased towards Real Madrid and Barcelona)

So going back to the definition of an economic bubble, is the football market experiencing inflated values? The answer is emphatically yes, with clubs exchanging millions in deals for players. Three years ago, Cristiano Ronaldo transferred from Manchester United to Real Madrid in an astonishing £80 million deal, somehow valuing him as an employee at that incredible amount. This is clearly an inflated fee and Sir Alex Ferguson even commented on the current market: “In any case, I think the transfer market prices have been terribly inflated over the last year”.  But that’s not where the inflation stops, with wages for the top players reaching £250,000 a week, which works out at £13.5 million a year and this is without add-ons like sponsorship and bonuses. Even taking out the top salaries, the average salary for a premier league player is around £30,000 a week, working out at £1.6 million a year, which when you consider a club generally has up to 30 players in a squad that is a enormous wage bill.

So the question remains, when will the bubble burst? Well, that actually doesn’t seem too far off. Taking a look at the premier league, Wolves are the only club to remain debt free, with total debt owed around £2.5 billion. Another damming statistic is that most of the clubs wage bills are higher than 50% of their respective turnover, which isn’t a healthy way to run a business. Returning to revenue, clubs outside the top echelons of the premier league rely heavily on TV deals to supplement their revenue, ranging from 50-80% of revenue. This means clubs revenue could become very volatile if TV deals were to ever drop. This is a big dilemma for clubs that are relegated, as the drop in TV income is huge and parachute payments aimed to help only last a few years.

Showing the reliance on TV income during 2009/2010, again found at

There is current evidence that the football market is slowing down, with clubs like Portsmouth and Rangers (of Scotland) entering administration (in the case of Portsmouth for the second time). This shows the danger for clubs of living beyond their means and it remains probable there will be even more casualties. The fear of administration (with cases around Europe) has seemed to have an effect, with Clubs visibly tightening their belt and UEFA (regulators of this market) soon enforcing tight financial restrictions. This can be seen by looking at the amount spent in the last two January Transfer windows in the UK (Usual leaders in spending): In 2011, £225 million was spent, while this year the figure was only £60 million which is a 70% decrease.

So is the football bubble set to burst? It seems like the fear of administration and tighter financial regulation means clubs are tightening their budgets. But we have yet to see a visible decrease in the values of transfer fees or wages from their inflated numbers and until that happens it can’t be decided whether the bubble has burst. But signs are pointing that way and with high amounts of debt and reliance on TV prices, we could see a very messy explosion.


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9 thoughts on “When will the football bubble burst?

  1. Perhaps the most fascinating idea when considering a “bubble” is how, despite being so different (from tuition to football to housing), they are all related: a strategy that one individual (or firm) initially commits is then followed by others in the market, this strategy is usually risky and eventually the bubble pops. Football has (and is) been following the same path.. With UEFA’s financial rules into play (now), will these rules help soften the “pop” of the bubble? Certainly they bring some logical and fair thinking into the table.

    An idea (economic theory) is that during a recession or a down-turn, we feel compelled even more to spend money on “easy” services; by easy I mean the barriers that we have to face to access to them, thus relatively little. Watching a football match is the case of turning the TV on and clicking a few buttons. We may have to pay a lot of our income for these services, but they satisfy us in the sense that we cannot travel or live the “life” we did prior to the recession! This can explain how football has burst through the recession.

    Ronaldo’s fee is inflated but it is an indicator to how the football market has changed in terms of transfers and success. Before you had Luis Figo, Michael Laudrup, Ronaldo (Brazilian), etc, switching from Real Madrid to Barcelona, AC Milan to Inter Milan -> from a very good team to another very good team (sometimes in the same league).

    Clubs realise that selling such a crucial “part” of their team, especially offensive players, in this given time (recession), could result in them taking 2 or 3 years to get back up to scratch. A good example of this is Arsenal this season, who have been humiliated by AC Milan and Manchester United after selling a couple of key players in the summer.

    Thus, clubs are selling players for higher values – naturally this means some players do not get sold (Tevez, Hazard), so although inflation plays a role in how Ronaldo was sold for £80 million, a look into some deeper football ideas shows that it’s about time clubs started charging insane rates for players – they are selling what is making them successful. The money coming in can be easily left to paying off debt as opposed to reinvesting for the squad.

    • UEFA seem desperate to finally regulate this market, with measures primarily looking at the premier league. I think it will interesting how clubs move around these measures, we have already seen Manchester city charge themselves (Owners company) an inflated amount of money for stadium name rights, a smart way to write off debt. I’m not sure if it will slow down the bubble or not, and to be honest I’m not sure what a fair value for a player is. As long as a club is getting 80 million for TV rights + winning the league (think it is around that number if not more) plus sponsorship’s and so on, then it makes sense that a player that could make a visible impact on success could be worth a chunk of that. There would have to be some sort of mathematical way of working out the players productivity, and then how much it is worth to the team.

      The only way I can see UEFA or even FIFA slowing this bubble down is by placing European or world wide transfer caps. They could be high at first (30 million) then gradually decrease each year. If done slowly it would give clubs time to accommodate. The nest step would be to place a salary cap, because I can only see these increasing in the future. A similar gradual process could have a good effect. But are either of the governing bodies brave enough to try and deal with theses issues, as it would surely have an negative effect on the money they bring in themselves?

      You make a good point about the easier options being harder to resist when in a recession. I know I still go and buy a magnum every time I’m stressing about money, not the best solution (it adds up to a lot of magnums haha).

      It seems to me, a lot of clubs are placing in a structure of buying young players, developing them and then selling at a high price. This is the only way to exploit this market, and Arsenal as you have mentioned are a good example of the benefits and cost of such a strategy. Arsenal originally bought Fabregas for a rumored price of £500,000 as a teenager, and then sold him this year for a combined fee of £40 million (£5 million coming from Fabregas himself). Financially that is a great deal, a massive profit has been made on a perishable good (Fabregas could get injured of decline with age). But the negative cost of such a strategy is that youth is expected to plug the gaps, so short term results can drop drastically. With Arsenal, they were also forced to sell Nasri (another important player) and now face missing out on the champions league next season, which not only loses them revenue, but also means they might have to sell more top players and lose out on being able to buy top talent (who will only play for champions league clubs). Its a viscous cycle and Arsenal know they have to qualify for champions league this season to keep competing at the top.

      I guess the crucial factor for clubs is balancing how much they sell with keeping enough talent at the club to stay in a respected position: be it champions league or even just staying in the top league.

      A new step in the market has been the flow of money into countries like Brazil and China. A Chinese club recently bought Anelka from Chelsea and are expected to buy Drogba soon. While in Brazil top talent is staying in the country (look at Neymar) as they now have the money to match wages in Europe. It will be interesting to see where that goes?

  2. I think if we start trying to create a mathematical formula to determine “productivity”, we will be doing exactly what the bankers and the banks did in 2008 to the finance & banking industry – trying to measure, understand, analyse a non-linear (and chaotic, to use mathematics) object.

    To determine what “productivity” is in a player will already deem to fail – what is deemed in productive in wingers in the modern age is them coming inside more, crossing less, especially during higher level matches in Europe. We could determine productivity for a winger by seeing how many times he comes in in comparison to how many times he crosses – Arjen Robben is a fantastic example.

    However – it can so easily change, Garrincha, a Brazilian winger, played completely differently. Would he be deemed unproductive for his position, by playing a differing style?

    In football, positions do not determine players; Barcelona’s centre-backs play completely different to how Stoke’s centre-backs play. Thus it is so difficult to measure “productivity” by just seeing the vast number of styles possible.

    Placing a salary/transfer cap is one of those ideas that come from only looking forward; there are so many possible things that can go wrong with it. Initially placing it removes the idea of football being in a “free market”, this would repel potential owners (such as the Arab investors for Manchester City). So there you could have less spending on football – less investment, as an investor sees this market as one having limits and caps. A market that can go to an extreme is usually a market that (just in my view) an experienced and rich investor/banker/person looking to make money, will participate in because of the promise of you doing your research, investing and promoting the right resources, will result in you winning something back for your work.

    Arsenal lost to Milan 4-0 this week (and as a result are most likely out of the Champions League), they lost to Sunderland 2-0 today (and are out of the FA Cup). There is so much potential revenue lost there! Now they have to fight for fourth place, despite earning a profit in the summer (and a relative huge profit).

    What happens here is this weird law of “normality” – do something stupid, you will get something stupid happen in return, eventually. A great example is Manchester United getting away with playing poor in the Champions League group stages for years – this year they were humiliated by Basel FC and their exit finally showed this law at work. With Arsenal?

    It shows how they sold the core of their team – Fabregas and Nasri, with an initial profit, in the long-run, will actually cost the club money! The board has profited from this, as have the owners, but the (perhaps sadistic) inevitability of Arsenal now starting to fail and fail because they made dreadful decisions in the transfer market for numerous years and now fully on this harsh cycle shows economic theory and mathematics do work – and for football they work more than ever.

    Initially you can see the football bubble as football clubs becoming business – becoming obsessed with money far too much. With Real Madrid, they have a president (Perez) who has bought them success, with Portsmouth, they had a manager (Redknapp) who gave them FA Cup success, but his spending and Portsmouth’s instability with wages and structure, shows that their initial success has led to their demise!

    In the case of Arsenal; they have become obsessed with selling and removing and keeping just above the “line”, i.e, finishing fourth place or above. How have they done this?

    Credit goes to Wenger and a large part of it goes to the superb talent of Fabregas, Nasri, and in the recent years, Van Persie, and with increased maturity of Walcott and others (Song, Ramsey, etc). Arsenal have not invested – they have sold that makes them successful – they are now being ruthlessly punished and their fans (a quick look on Twitter by searching for #arsenal) are going insane. This is the football bubble. It’s more sly and subtle than what I initially saw as the bubble – but for Arsenal it has already popped. For Chelsea it will happen soon, for Manchester United and Manchester City, it already happened in Europe this season.

  3. With your first main point, i agree completely, though i suggested a mathematical formula, I can’t actually see how it would ever work. The first problem is what you suggested, many players and teams have different styles, so stats can’t really be used properly (crosses for wingers etc). The second problem is that it is a team game, one players can’t win you a league, you must have a good squad, and they must be able to play together (chemistry), so you would never be able to value how much is the teams performance and how much is the individual.

    With the caps issue, it depends where you want football to go. Caps will inevitable cause short term problems, with investors not seeing the market as attractive and clubs wont make as much money. But that is what will be needed to stop a messy burst of the bubble I believe, as otherwise fees and wages will continue to inflate and more clubs will go under. I’m not saying take all the money out of football, if every club could wipe put there debt, and wages were capped to stop high costs, then clubs could make easy profits with transfers capped lower (say 10 million). Caps wouldnt effect TV rights, as fans would still watch football, regardless of how players are getting, or how much players cost. So Clubs would still be bringing in massive amounts of money, the caps would just stop crazy deals going through, and maybe even promote long term thinking with squads (not much point in selling your player, if now you can make more money by doing better in the league).

    In your cases with Manchester United and Arsenal, I think you are being a bit harsh. Manchester United have had very successful champions league campaigns in the last 5 years. You could say that was contributed by Alex Ferguson timing his squad so it peaked towards the end of the season. To do this, his team wouldn’t be at its best in the group stage, this seems a fair bet, as half the teams make it through, and usually there are weaker teams in a group where united are the top ranked team. This year, United just played awfully in the group stage, they didn’t do just enough, they lacked dare I say it Scholes and I think Ferguson made the wrong team selections (playing weaker teams). But one year out at this stage, when United have made three finals in the last 5 years, I think is worth the risk. For me, i would rather try and win the Champions league then just make sure i made it to the later rounds.

    With Arsenal, I actually think they haven’t been too bad the last few years. Before this season Wenger always seemed to have a long term plan to his squads. They nearly won it when flamini was there (were unlucky to be up against C.Ronaldo at his prime for united), then their team was torn apart by players leaving (sound familiar) but he still had players coming through and had bought in a talented winger but not too much (nasri>gervinho) . They struggled that next season and nearly lost 4th place (again familiar) but the difference was they made a big January signing in arshavin who restarted there season (something they didnt do this season, unless you count Henry who has now left). The next couple of seasons they actually competed and only fell away near the end, probably down to lack of money to compete with united and chelsea at the time. But that never bothered me, Arsenal lived within their means, bought wisely and invested in youth players that more often than not turned good. They were still the 4th best team the last few years and managed ti compete with there rivals both in the league and champions league despite spending nowhere near as much.

    What really disappointed me this season, was that there seemed a complete lack of long term planning. They knew they were gonna lose fabregas, and tbf they did have wilshire and ramsey. But one has been out for a while and the other unluckily got injured himself. Then they also didnt learn from hleb and flamini and lost Nasri with his contract running out. They bought in Gervinho but he was needed anyway along with nasri. So on transfer deadline day they rushed and bought in four players with no long term planning at all. Arteta has been a revelation but is too old to base a team around, while benayoun, chu young and Mertesacker have either hardly played or given pretty poor performances. Injuries have exposed Arsenals squad and this is the worst squad I have seen by them for years. I always had a soft spot for Arsenal because of the smart choices they made, but this season has been a catastrophe.

  4. m2wester on said:

    I disagree with a lot of points in the article. If there is a bubble, it’s not at the big clubs. They get enough returns to pay the insane wages and fees, there is no speculation involved. In the cases of Real, Barca, ManU, Bayern, Arsenal, they even get it through regular income – unless the tv market or sponsorship market completely breaks into pieces (which neither did even at the peak of the financial crisis), none of those clubs will run into any problems with their business model, they are all profitable.

    With ManCity, Chelsea, Inter, PSG, we have a slightly different case. Those clubs are mostly luxury items for the ultra rich. But I would not call that a market bubble, either. Again, there’s no speculation, the guys paying the bill don’t expect a return (except for the exposure). There is the risk of them getting tired of their toys, though, which would have the same effect of a bubble bursting.

    Of course, you could argue that the ridiculous money spent on transfers and players’ wages would be better invested elsewhere. But where? What should Madrid have done with the 80 mio they spent on Ronaldo? Spend it on 4 lesser players? They only need 11 players on the pitch at any given time, a squad of 20 great players is better than a squad of 80 very good players, so paying much less money for merely slightly lesser players is not an option among the top tier clubs.

    A bubble in football exists, but not so much at the top. It’s among the wannabes. The clubs that want to get into the Champions League or into the first division of a country often lean towards spending more than they have, speculating on future success. That’s how Portsmouth went down. The bankrupt clubs in Spain are not the big 2, but rather the lower half of the table in first division and much of the 2nd division.

    And that’s basically what UEFAs financial fair play is about. Though it also adresses the luxury-item-clubs, prohibiting owners from spending recklessly on their toy and thus protecting the clubs from the owner getting tired of it.

  5. You make some good points. I think the point I’m coming from is a business view. In the football world the ronaldo deal may have made sense. But in the business world, it is arguable the resources could have been used more efficiently.

    For example Madrid have yet to win the league with ronaldo (they could this year, but I will ignore that). So, it could be argued they would have come second without ronaldo anyway, saving the cost of his fee and wages.

    Going back to the main issue, the bigger clubs will probably avoid going under. But this is the same for every bubble, the biggest firms arent the ones that are heavily effected, its the lesser firms that have joined the bandwagon. We might get one big collapse (a lehman brothers if you will) but it we probably be the smaller teams that collapse.

    In any event, I think we will see less revenue for the big clubs if the bubble bursts. Fear can spread and the big clubs wont find loans as easy as they once did.

  6. Lighty on said:

    Nice article, but does not answer to what is for me the central question: how could have we come this far? I’ve never understood the business case for football. Owners keep on pouring money in these teams, and if they are lucky they manage to break even. Instead of cutting their costs, they inflated it beyond reason. I’m 100% convinced the football is a giant money laundering affair, but I’ve never found books or articles that explain how it works in detail. Any hint would be greatly appreciated.

    • It is puzzling, I guess they believe that one day they will make a profit, or in Chelsea’s case they are happy to throw money away as they love the sport. Perhaps they even think big football clubs are a stable enough institution to invest cash into, as they will always attract the fans all over the world. I wish I could help more, but to be honest I’m just as confused ha.

  7. Football was a sport to give the working class man/woman entertainment, when Britain was an industrialised country. Football players came from the same backgrounds and remained from the same working class backgrounds as those who went to see them. Money has destroyed the game. It is no longer a game but for years it has become a business. A business for the majority of rogue business men to park their ill gotten gains to be passed onto footballers of the same ilk. When footballers get paid more in one week than the majority of the people who watch them week in week out get in a lifetime or at least in 10 years then there has to be a correction to bring the game back to the working class game watched and played by working class people. Pure and simple as that. There should be no arguments to the contrary and I believe a correction is long overdue!

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