UEFA: Preserving the Beautiful Game
By: Hamza Khasawneh
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
Sloppy Plays on the Field
Soccer is the world's most popular and lucrative sport, with annual revenues of $56 billion. However, behind the impressive revenues, luxurious stadiums, and breathtaking spectacle is an unsustainable business model that does not befit the beautiful game. This fiscal irresponsibility has reduced the social value of the sport as poor business practices disenfranchise fans. However, changing regulations in the short term and transitioning to a new ownership model in the long term can be a first step to ensuring the game can be financially sustainable and positive for communities.
European soccer’s governing body, the Union of European Football Associations (UEFA), is enabling this model. Hosting competitions like the Champions League, UEFA regulates the transfer window, imposes financial rules, develops the game in Europe, distributes funding, ensures sporting integrity, and more. Its members are the football associations of European countries, which typically administer local domestic leagues. UEFA can push European soccer to a more fiscally responsible future within their role.
Over Budget and Out of Bounds
The most significant revenues in soccer exist only for the sport's biggest brands, which participate in the biggest games and win the biggest trophies. Thus, in pursuit of success at the top of the pyramid, many teams overspend, most notably on player wages and transfer fees.
UEFA recommends that soccer teams spend no more than 70 percent of their revenues on player salaries. This number is exceedingly high compared to other major sports leagues, such as the NBA, NHL, and NFL, where players receive 50 percent of revenues. Even though UEFA has deemed such a high percentage of wages sustainable, teams have minimal incentive to follow the guidelines. While they receive fines for overspending, they are often not significant enough to discourage risky behaviour.
The allure of the financial rewards associated with high league positions, including prize money and high-value sponsors, means that even the most prominent teams have failed to spend responsibly. In the 2017/18 season, the average wage-to-revenue ratio across the Premier League, La Liga, Serie A and Ligue 1 was 64 percent. With the shock of the COVID-19 pandemic closing stadiums, the risk these clubs took became evident, as by the 2021/22 season, the wages-to-revenue ratio reached a peak of 74 percent. As pandemic restrictions have been reduced, teams have achieved slightly healthier wages-to-revenue at 70 percent. However, the vulnerability of soccer clubs has been exposed, demonstrating that many teams are just one rainy day away from crisis.
Soccer is an inherently unequal sport; the wealthiest teams can pay the highest salaries and buy the best players. Recently, they have become backed by even richer ownership groups, ranging from private equity firms to sovereign wealth funds that enable irresponsible spending by covering any losses not permitted in UEFA's regulations.
To compete, lower-tier clubs are forced to spend even more without an increase in revenue or the cash injection associated with private investment. For example, English second-division clubs recently spent over 94 percent of their revenues on wages as they attempted to earn the prize money associated with promotion to the Premier League. These clubs also take on more debt and are less liquid, increasing their chance of insolvency.
At a fundamental level, UEFA's existing governing system encourages teams of all levels to be gamblers, spending heavily in the hope of prize money. However, only a few teams can consistently receive high volumes of prize money. Often, the winners are the teams already the richest. Thus, they can be bailed out despite their financial irresponsibility, and those who don't win are left scrambling.
Patchwork Plays in a Losing Game
UEFA and its member teams have recognized that the high-risk, high-reward strategy is unsustainable. Rather than address the root cause, however, teams have pursued band-aid solutions that are either unsustainable or increase inequality.
Private-equity and sovereign-wealth fund-owned clubs, notably Chelsea and Manchester City, have recently started pursuing multi-club models. These teams purchase "sister clubs" to become feeders to the "main team," reducing their risk profile by investing in younger players while they are cheaper and "storing" them at the sister club until they are successful. In doing so, fans of the "sister club" are forced to watch their local community's team become a pawn for an ownership group with no interest in their team's success. While this model could make soccer more sustainable, it threatens competition, harms fans of teams not part of the historical elite, and damages communities.
Furthermore, as clubs' expenses have increased, clubs have passed costs onto fans. Watching every Premier League game last season on TV would cost a fan over £1,000, a significant increase from £540 two seasons ago. Additionally, UEFA has had to put a cap on the rising ticket prices for this upcoming season, limiting tickets to €60 at most, down from €70 in 2019. However, the measure only passed with UEFA’s insistence, as many teams were outwardly vocal in opposition to the implementation. While governing bodies look to understand why the younger population is not as interested in soccer, they must realize that increased prices are alienating young fans from becoming lifelong supporters of the sport.
On the quantity side of the revenue equation, UEFA has aimed to reduce the risk of revenues by increasing the minimum number of games in their new Champions League format from six to eight. Over time, the increased number of games has resulted in soccer players playing a similar number per season as NBA players. Yet, they receive four weeks of rest instead of four months, increasing the toll on players' bodies and the likelihood of injuries. Recently, players have reached a breaking point, with calls for a strike becoming increasingly common.
These injuries are also financially damaging for the clubs. Last season, injuries cost clubs $800 million, and this number is only increasing. Injuries reduce a club’s key assets, reducing the willingness of other teams to pay for a player in the transfer market.
Overall, the band-aid solutions pursued by UEFA and the world's wealthiest clubs disadvantage their customer base and players. They also heighten inequality in an industry where competition is crucial to entertainment. Change is necessary to create a more sustainable future.
Short-Term: Red Card for Fiscal Flops
UEFA started to implement stricter cost-control measures in the 2023-24 season. These regulations state that the total spending of a club on player wages and transfer-associated fees must be within 90 percent of the club's revenue. By the 2025-26 season, this limit will be reduced to 70 percent of revenue. UEFA's Club Financial Control Body determines adherence to financial rules and can ban clubs from UEFA competitions for failure to comply.
While practical first steps, they are backward-looking as clubs are only punished after they have acted fiscally irresponsible. Furthermore, UEFA's typical punishment is disqualification from their competitions or a fine. Therefore, clubs in a problematic financial situation find it even harder to regain stability.
To prevent overspending, UEFA's Club Financial Control Body should set spending limits based on each club's audited forecasting statements. Additionally, clubs should be required to request to spend beyond the assigned cap, providing supporting proof of revenues that will mitigate the rise in costs. By abiding by UEFA's rules, member associations should eventually become self-sustaining.
Afterwards, UEFA should develop a platform inspired by La Liga, where clubs can access their fiscal health within UEFA’s regulatory framework in real-time, as determined by the Club Financial Control Body. Once these steps are complete, additional layers of complexity can be added to the financial regulation. A comprehensive monitoring system will allow clubs to ensure they comply with UEFA’s regulations and spend within their capabilities.
Case Study: La Liga’s Turnaround Tactics
In 2013, Spanish soccer had over 20 clubs facing insolvency issues. There were significant financial issues concerning payments of player salaries, meeting social security requirements, and paying off debts. The future of many teams hinged upon achieving competitive targets as soon as possible. With this challenging situation, La Liga imposed stricter financial regulations that are continually evolving today. These forward-looking regulations require teams to submit their projected financial statements to the league. Based on the economic projections, the league allocates a spending limit to the club for player and staff salaries alongside transfer restrictions.
Since its implementation, La Liga's rules have resulted in its smaller and medium-sized teams becoming more profitable with better liquidity positions. The financial state of many Spanish teams has recovered drastically, with many clubs surviving the pandemic with ease compared to their European counterparts. La Liga's financial forward-facing regulations prevent the need for any punishment of clubs by preventing mismanagement before it happens. They are the gold standard for rehabilitating the fiscal health of soccer teams.
Long-Term: Balancing Ownership for Sustainable Soccer
Implementing forward-looking cost controls will allow UEFA to create more financially stable clubs. However, it is necessary to ensure clubs do not ostracize fans or players as they take risks to compete. Under all cost-restricting regulations, higher revenues will allow for more lavish spending, and teams will be incentivized to increase ticket prices, maximize the number of games, explore multi-club models, and develop other solutions that enable the highest possible short-term spending.
To prevent this, UEFA should transition clubs to a "50+1" ownership structure after six cost control measures (three seasons to achieve a 70 percent cost-revenue ratio and three seasons of clubs operating within this restriction). Under this structure, fans must control at least 51 percent of the voting shares, with the remaining 49 percent available to private investors. In this system, private investors can still own more than 50 percent of the club's total shares, allowing them to earn substantial profits without having exclusive determination of the club’s direction.
Clubs would enter this ownership structure via a membership system. Memberships represent a "voting share" of a team that can be purchased at a price tied to the local population's ability to pay. This system protects club private ownership, meaning investors do not need to sell shares from which they earn profit.
A membership system operates by having local fans purchase memberships yearly for the right to vote on a board to manage the club. Each club can independently arrange how often the vote occurs and mechanisms to initiate a vote of no confidence. Since cost-control measures mean clubs should always be self-reliant, the fan position is strengthened, as private investors cannot strong-arm clubs in making decisions. Overall, the 50+1 model will ensure that the board considers the fans' interests while simultaneously providing the club with a recurring revenue stream.
Meanwhile, private investors can purchase memberships separate from their stake in the club's profits to obtain up to 49 percent of the club's voting shares. While UEFA should expect pushback from existing private investors, allowing a full share of profits should be an acceptable compromise for external investors.
There is no limit on the number of memberships purchased. If private investors buy more than fans, their voting share should automatically be reduced to 49% by adjusting the weight of fan votes. The combination of strategic investors and fan influence under the 50+1 rule balances market efficiency and social externalities that best optimize a soccer club's operations.
To implement this system, UEFA should collaborate with its member associations, affiliated leagues, and clubs to gradually increase the number of fans voting. They should also help clubs form boards to oversee and guide their operations; for clubs currently without a board, UEFA should allot ten seasons to make this transition, with yearly compliance benchmarking. After this transitional decade, UEFA should implement punishments such as competition bans for clubs that do not adapt.
Case Study: Bundesliga’s Winning Strategy
The German Bundesliga is the European league infamous for imposing the "50+1" structure as a rule for all its clubs. It is also the only league that maintains financial responsibility while keeping fans engaged. Posting a profit every season for the last twenty years and the best wages-to-revenue ratio, the Bundesliga is Europe's financially healthiest major league. Simultaneously, the league only plays 34 games instead of the standard 38, enabling them to give players a winter break to recover physically. Lastly, the Bundesliga is one of the most accessible leagues to fans. The average cheapest season ticket for a Bundesliga club is €205.47, less than one-third of the Premier League's average of €696.26. This has allowed the Bundesliga to achieve the highest average attendance of Europe's major leagues.
In Germany, fan ownership has instilled a culture across the league where clubs care for their communities, are financially sustainable, and make the game affordable. This is because fans are motivated to ensure their local team provides social value to their communities rather than maximize revenues or take significant risks to win as soon as possible.
Keeping “The Beautiful Game” Healthy
The recommendations presented are actions that can help make soccer a sustainable business. While not a golden ticket to fixing the sport, they provide a long-term strategy across 16 seasons to create a sport that serves all its key stakeholders. The Bundesliga and La Liga show that tighter financial regulations and fan prioritization improve economic stability. UEFA learning from its members to create better European structures will ensure the game stays beautiful.
