Football slated to suffer consequences of pandemic with reduced transfer budgets; India to scrape by largely unaffected
Football clubs across the world will be hit by the reduced earnings due to the coronavirus pandemic with chances of smaller ones going bankrupt. The impact in the top-5 European leagues would be felt in the transfer window.
Borussia Dortmund CMO Carsten Cramer shared that the Bundesliga club was losing approximately three million euros per unplayed match. “We cannot deny the fact that restarting the Bundesliga was a financial question,” Cramer admitted. “Revenues are missing. But expenses for every club are continuing.”
Schalke 04 finance director Peter Peters expressed his "concern" about the club’s situation during an interaction with fans in April. "Everything depends on when we can start making money again," he said. "And that means playing football."
Schalke, who rely heavily on broadcast revenue, transfer fees and participation in European competitions, had posted debts of almost €200 million for 2019. The club was owed €15.8 million as the fourth and final installment for the Bundesliga clubs. If the league didn't start in May, the club could have gone under.
Football has since resumed in Germany with the financial ramification of the pandemic getting subdued with each passing match day. The revenue from fan attendance and stadium tours, among different sources of income, will not trickle in for a while but the TV broadcasting fee would help clubs stay afloat.
Lokomotiva Zagreb director Dennis Gudasic warned of a “drastic situation whereby we have maybe 100, or 200 clubs go bankrupt in September or October” if challenges facing smaller clubs are not understood.
For smaller clubs in non top-five leagues, big factor towards earnings are transfers. Among the recent big money signings from non top-five leagues have been: Joao Felix moving from Benfica to Atletico Madrid for €126 million, Matthijs de Ligt and Frenkie de Jong from Ajax to Juventus and Barcelona respectively for €75 million each and Fred from Shakhtar Donetsk to Manchester United for €59 million.
A reduced level of earning for big clubs would affect their ability to spend, thus bringing down their investment into signings. The domino effect could have far-reaching effects towards smaller clubs who ply their trade in smaller leagues.
For each of the past four summer transfer windows, Premier League clubs have dominated their European rivals to splurge over £1 billion on transfers. But that could well be significantly impacted with English football still in a logjam over resumption. Clubs will take a vote on 'Project Restart' on 27 May towards second step in an effort to return to full action by June.
"I cannot help feeling that speculation around transfers of individual players for hundreds of millions of pounds this summer seems to ignore the realities that face the sport," said Manchester United chief executive Ed Woodward in arguably the biggest indication of transfers not expected to see the levels achieved in the past decade.
If the league does not resume, broadcasters could be due a rebate worth a reported £762 million. And if it does, income from gate receipts would be quashed. Further, a number of major sponsors such as airlines and gambling companies have been badly hit by the shutdown, which is expected to lead to a curb on commercial revenue.
A KPMG study predicted transfer value of players in 10 of Europe's top leagues could plummet by up to a staggering €10 billion if the season isn't played out. The study also estimated losses of of €4 billion for the top-five leagues, including France, where the season has ended, if the campaign does not finish. According to Transfermarkt, €1.8 billion had been wiped off the value of Premier League squads by mid-April.
Tottenham Hotspur defender Jan Vertonghen believes free agents would have better odds of making a move in the transfer window. “I’m free, of course, and many clubs don’t have the money to do transfers. Transfer-free players like me are even more coveted in the coronavirus crisis.”
UK-based sports lawyer Daniel Geey reckons a lot could hinge on whether the seasons are finished or not with loan deals likely to become popular. "I think generally in terms of trends that are likely to happen over the next few windows, depends on what happens in the Premier League, Serie A and Spanish league over the restart and depending on whether restarts can happen and can continue and then the broadcasters are effectively able to pay the remaining amount plus possibly rebates and discounts, that then clubs will have more money to be able to then budget for the coming windows," he told Firstpost.
"I don't think there would be more free transfers because those clubs and players that are out of contracts will still be out of contract. The question I think will be whether those free agents, Bosmans will be paid the same amount they otherwise would have been paid. But I think some of the other trends are likely to be seen is in terms of more loan deals," he added.
With some leagues on hold and others hoping to commence soon, it opens up the issue of player contracts expiring before the season is over. FIFA bureau recommended players’ expiring contracts be extended beyond 30 June and confirmed that it would permit transfer windows to be put back beyond the end of August. The situation, Geey believes, is not as easy as it sounds.
"Issue around contracts expiring is a difficult one. FIFA guidelines asked clubs and players to come to pragmatic solutions and agreements to try and extend deals as much as possible. But at least under England and Wales law, that's not necessarily going to be the case without agreement from both parties.
"So the same (applies) for players that are out of contract and for players coming back from loan deals. Unless those loan agreements between the loanee club and the parent club can be agreed, it is a distinct possibility that those players might be coming back to the parent club but might not be able to be registered for the remaining part of the season. It then leads to another question about when the transfer and registration window opens," he argued.
The biggest cog to the resumption equation are the broadcasters. In these challenging times, clubs rely on the TV revenue and the broadcasters for the season to continue. A premature end to the season in France saw broadcasters Canal Plus and beIN Sports not releasing the final installments to the tune of $246 million. Additionally, Canal Plus decided to terminate their association with the French league. Premier League is unlikely to face such a scenario with domestic broadcasters BT Sports and Sky Sports expected to continue association of the lucrative championship.
"It's key, obviously, that broadcasters have paid significant amounts of money in the Premier League especially 9 billion pounds over a three-year period and the domestic and international broadcasters want to be able to broadcast those live must-see games. And it's the same with other leagues around the world too. For the broadcasters that have longer relationships with the rights holders, the Premier League for example with BT Sport and Sky Sports, there might be a greater degree of pragmatism of trying to find value and opportunity to be able to continue to work together," said Geey who authored 'Done Deal' which looks at modern football from a business perspective.
"But for the likes of Canal Plus whose contract for the league ends this season, they are maybe less likely to continue on that partnership route if they know that the contract is ending at the end of the season in any event. It's certainly a pragmatic approach that broadcasters are taking with legal rights holders, and very much depends upon their short term, but also long term, aims for deciding on how best to cooperate."
'Indian football not as significantly affected'
Unlike the European leagues who spend millions, Indian football doesn't see such lofty expenditures. It could thus help football in the country on not being as severely hit as the biggies.
"Thing with Indian football is that it's unlike Premier League or LaLiga where big money is involved. For ISL (Indian Super League) owners, the maximum a team spends on a club is around Rs 55-60 crores. And few clubs recover somewhere around Rs 30-35 crore. So there's an approximate loss of Rs 20 crore.
"There's not much of sponsor money in Indian football right now. Some like those in North East, Bengaluru FC get sponsors but that isn't a big sponsor either. A front jersey sponsor will be like Rs 50 lakhs or Rs 1 crore annually. So the clubs will lose money but anyhow they weren't gaining much from sponsors. The impact will not be because of these losses, but will be because of the losses these owners will suffer from their main businesses," said Sonu Lamba whose agency Four Flags represents the likes of Bengaluru FC's Sunil Chhetri and Mumbai City's Amrinder Singh.
ISL was completed before the lockdown was enforced but 28 matches in the I-League were yet to be played before the season was called off and Mohun Bagan were declared champions. The uncertainty over the start of the next season is impacting the clubs' activity in making transfers. Additionally, new rule of 3+1 over foreign players in the I-League will make a difference over the transfers.
To curb spending, clubs are looking at reducing the number of players they sign and the amount they spend. Lamba believes the strategy to cut salaries in India won't achieve much considering the small numbers in play.
"Most of the clubs have stopped signing only. There's not been much movement on any of the players. Market has come down drastically like the salary of the players. I would say players who signed long-term (contract) or who signed in January were really fortunate. Clubs are only going after their top targets. Like earlier you would have your playing XI and then substitutes for each position. Now clubs are not very desperate for for substitutes. The money has reduced too. I can't name club and player but earlier we agreed for Rs 25 lakhs but after a week they came back and said we can only do Rs 20 lakhs. So a drop of 20 percent."
"As far as the player contracts are concerned, players taking a pay cut here is not going to be as useful because big money is not involved. Only 20 percent of the players are making good money, above Rs 1 crore, the rest there's a big gap. The highest earner will be somewhere between 1.6 crore - 1.8 crore. And the the guy who is earning the lowest could be someone who joined for just Rs 10,000 a month. So on an average all these young players sign a contract in the range of Rs. 6-15 lakhs and then there are top players who sign for Rs. 1-1.2 crores."
"There's been no alarm so far, no discussion over salary cuts or contract renegotiations, no players being released. Some clubs in the I-League have terminated contracts but none in the ISL. I manage 40-45 players but I haven't heard of any challenges so far," he clarified on the situation at hand.
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