What Happens to Footballing Revenue Due to COVID -19?

Considering the current COVID -19 pandemic, there have been widespread coverage on the financial difficulties faced by football clubs. The biggest concern is the clubs’ inability to pay wages. Are football clubs poorly managed when it comes to their finances? We know that clubs make their money primarily from broadcast rights, sponsorship, ticket sales, and merchandise sales. Now, what happens during an unexpected pandemic or economic crisis? Let’s break it down according to each revenue source.

Broadcast Rights

Broadcast companies pay huge sums of money to acquire the rights for football because they estimate profit from customers who would pay and subscribe to their channels to watch football. Now, in a crisis, customers may not be able to afford the subscription fees, thereby defaulting on their subscription, resulting in a loss of income for the broadcasters, who will then not be able to make the rights payment to the league. There is also the legal implication if the league is cancelled. Since the broadcast rights is valued based on the number of games available, a cancellation will mean a reduction in the number of games available, thereby, reducing the value of the rights that is entitled to be paid. In addition, lesser games means lesser content for the broadcaster which will result in lower subscription revenue, as subscription by customers are based on the content available.

Sponsorship

Companies become sponsors if they believe such an affiliation will result in heightened brand awareness and increased earnings. They aim to turn fans into paying customers to add to their existing customers. In a crisis, these customers will likely lose their spending power. They will buy less of the sponsors’ products resulting in a reduction in the sponsors’ earnings. This makes it difficult for the sponsors to pay the clubs their sponsorship income. There is also the legal implication if the league is cancelled. A sponsorship agreement includes branding opportunities for the sponsors, which is calculated based on the number of times the sponsors’ logo is made visible during a game. In the event of a cancellation, sponsors have the right to request for lower sponsorship payment thereby resulting in lower sponsorship income for clubs.

Ticket Sales

Fans pay to watch their favourite club. In times of crisis when fans experience limited spending power, clubs have the option to adjust their ticket prices to make it more affordable. Although the revenue will be lower, but clubs will still have money coming in from selling matchday tickets. The biggest problem lies in the cancellation of the league. With no games to play, clubs will receive no revenue from ticket sales.

Merchandise Sales

Fans buy merchandise of their favourite club. Again, in a time of economic uncertainty and low spending power, fans may opt to reduce their expenditure on merchandise resulting in loss of merchandise income for clubs.

Football clubs are very much like other business entities that rely on the spending capacity of the general population one way or another. During a pandemic, when people are not spending as much, the domino effect will inevitably impact all football clubs around the world. Like most businesses, wages represent one of the highest (if not the highest) operating expense. In cost-cutting measures, the biggest number on the expense sheet are usually the first ones to go. Hence why we see widespread employee retrenchment in many industries during difficult economic periods such as the current pandemic. It’s no different in the football industry. This does not mean that football clubs are poorly managed. It simply means football clubs are not immune to the effect of economics.