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Why football is more of an investment than scoring goals

By Football256 Team
URA FC forward Cromwell Rwothomio dribbles past SC Villa defender Gavin Kizito in the league last season | URA FC photo

By Solomon Murungi

As the football world is being bashed with news of the creation of a new European Super League by the 12 biggest clubs in Europe to rival the UEFA Champions League, the football lovers and fraternity are wondering as to what could be the fate of the game in the coming years.

The Chairman of the ESL and Real Madrid President Fiorentino Perez described the move to create the new league as an answer to the financial losses suffered by clubs due to the ongoing COVID-19 pandemic in a in a deal that was ‘years in the making’.

Perez also went on to say: “Football needs to evolve, like life does, soccer needs to adapt to the times we live in. Football is losing interest. Something must be done and the pandemic hastened that. We are all ruined.”

However, this has been criticized by players, fans, pundits and other clubs who have seen this as a selfish move by the rich clubs at the expense of emerging clubs who have always treasured competing in the Champions League.

UEFA also threatened legal action against the 12 break away clubs and bans from future competitions as well as the participating players from involving in World Cup or European Competitions.

Objectively and in terms of economics, one can agree that such an incident was bound to happen especially with the way the pandemic has hit the game.

Revenue collection has fallen as no fans are allowed into the stadiums with clubs are heavily dependent on sponsorship deals alone. This juxtaposed with the capital-intensive nature of sports ownership, it is imperative to understand that the financial interplay had to take charge.

The high investments made by the owners of these clubs such as the Glazer family, Roman Abramovich, Sheikh Mansour among others on running their business needed a quick solution to save their stake.

Football clubs, previously unique and conventional are now more business oriented in that they strive to make profits, some of which may be returned to shareholders through dividends.

According to Factset, Manchester United awarded a dividend of 18¢ (14p) per share in each of its past four financial years, paying out £23.3m to shareholders last year. To make profits, clubs generate income from match days, commercial activities and TV deals.

In terms of funding and profitability, JPMorgan Chase (JPM), the American financial Goliath was behind the financing of the ESL.

Funding for the new competition is said to total between $3.8 billion (£2.7 billion) and $5 billion and the bank promised to help “sports teams and owners secure the customized financing needed for team acquisition, stadium or arena construction, working capital or any other liquidity need.”

In terms of profitability, the 12 clubs that had signed up to the ESL competition had each been promised a €200m-€300m ‘welcome bonus’ by JP Morgan as income from TV rights shall also grow.

More so, the ‘founding’ clubs of the ESL which included Barcelona, Liverpool, Manchester United, Real Madrid among others will each acquire an equity stake in a new company that will run the competition.

Also, the nature of the league itself is security for the club’s profitability. Unlike the traditionally tiered league system favored by European sports where teams are relegated and promoted each season, the new Super League will have permanent members who cannot be removed from the competition.

This implies that Clubs will not be affected financially in terms of revenue like it has been whenever a club failed to qualify for the Champions League.

It was not by surprise therefore that shares of Manchester United and Juventus on the stock market grew by 9% and 18% immediately upon making the announcement to join the league.

As all this talk goes on, one wonders where the sports industry especially football is standing in Uganda! Let us save the discussion on the errands of Magogo’s tenure, sacking of McKinstry among others for another day.

We must all agree that the business of sports has been a fast-growing market over the last few decades as billions of monies are being reaped. The growth of the market has attracted private equity investors, sovereign wealth funds, and bankers eager to lend money.

According to Yahoo Finance UK, a lot of interest is being seen from private equity firms and banks in terms of looking at sport as an investment opportunity since there is hope for the continued growth of sport in the coming years.

A closer look at the budgetary allocation on sports for the 2020/21 financial year, only UGX17.6 billion was given of which only UGX 10 billion was sliced to football the most popular and biggest sport in the country.

There is even little hope that maybe the slice on the national bread to sports shall be increased in the 2021/22 budget.

Looking at our revenue harvests made by clubs competing in the domestic league and the Stanbic Uganda Cup, little revenue is being earned.

The outstanding source of revenue has always been gate collections on match days for most of the clubs competing, a source which has been subdued by the pandemic.

Even the few that have sponsorship deals, state back-up or player sells end up spending more than they receive in the long term.

An example can be seen with KCCA FC who in the financial statement released for the FY 2019-2020, reported a net loss of UX 42M for 2019-2020 compared to UGX 527M for 2018-2019.

Even the prize money of UGX 60 million shillings for the Uganda Premier League winner is not enough to fund half of the season for a club usually comprised of over 30 individuals. No wonder stories of non-payment of player salaries and allowances continue to roam our tabloids.

In terms of infrastructure, a lot is left to desire. Just like how a pipeline is constructed for purposes of helping in the exploration of oil, either way we will not explore our talents if there no stadiums.

As we talk now the Uganda Cranes are uncertain as to the home venue of the World Cup qualifying matches since the only FIFA approved stadium – Mandela National Stadium continues to be blacklisted by CAF and FIFA.

What should be done?

It can be said that despite of all the issues faced by the sector, there seems or is still a silver lining as football still emerges to be the darling sport for many.

It is high time the government of Uganda refocuses on developing the sports industry through increasing budgetary allocation made to the sector. This should be done in terms of developing football stadiums and other necessary infrastructures to support the game.

Focus should as well be turned to attracting foreign investors to invest in the sport sector. In the short run if the sector is well developed, clubs shall generate income from various commercial activities which shall turn out to increase on the tax base of this country.

Imagine the teams in the UPL and the Big League being comprised of almost 1000 individuals paying taxes inform of income tax, taxes on player sales and gate collections from thousands of fans among others, that would be a substantial contribution to the revenue basket.

More so the sports industry would help reduce on the unemployment levels and to boost other sectors of the economy such as tourism, sports betting among others.

Obviously, a traveler to London cannot afford to lose catching a glimpse of the Arsenal’s Emirates stadium, or the Chelsea’s Stamford Bridge. Likewise, who would not want to watch the legendary SC Villa play at Mandela National Stadium.

To the stakeholders such as FUFA let us work to build the game but not destroy the game. As a country, the time for scandals and calculators should be history as we discuss how to win the Africa Cup of Nations or qualify for World Cup but not failure to pay the sacrificial players.

Whereas for the fans lets continue supporting our local clubs and donning those local jerseys for marketing purposes.

For the local financial corporate individuals, bodies and institutions like banks, let’s throw dice on investing into the beautiful game which is an entertainment behemoth with strong underlying demand of over billions of consumers.

Otherwise in a few years’ time when Foreign Direct Investment has penetrated into our leagues and built an empire, we may not have the financial muscle to tap into the game.

Football has changed overtime, it is not only about scoring goals and cheering the winning team but the investment made and the impact it causes on the economy.

It is the reason as to why Britain’s Prime Minister Boris Johnson was quick to regard the ESL as a “cartel” wanting to ruin one of the great glories of Britain’s cultural heritage.

Some of the Clubs may have pulled out of the Super League due to the pressure from fans, but with time they may realise an economic need to have a league that can produce outputs proportionate to the investments made.

Since the multi-billionaire businessmen came to invest in the game, as football fans we have to understand the nature of business to grow the game.

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