Economics of Football: Wages
With a total wage bill that eclipses the GDP of the Seychelles, Tonga and Samoa, the Premier League spends big on their employees. Ronaldo alone makes more in salary than 3 clubs. Let’s dig into the business of player wages.
PSG’s recent acquisition of Leo Messi has left the club with perhaps the most expensive wage bill in world sports. Sure, Messi was a free transfer but the £25m he will collect every year he plays for Les Parisiens is a major part of PSG’s £200m+ in salaries.
In the first instalment of Economics of Football, we looked at the billion-dollar world of sponsorships in European football. Now, let’s understand how those sums are spent as we better understand the billions spent on wages.
To start, how much money are we talking?
The top Prem clubs are spending hundreds of millions on fielding a squad.
Sure, Ronaldo will single-handedly win a handful of games each year (see Villareal, Atalanta), but his £25m salary pushes Man Utd to the top of the big spender’s list. Ronaldo’s salary alone exceeds the total salaries of Norwich, Leeds and Brentford.
The Lukaku, De Bruyne and De Gea’s of world football also contribute to the Premier League holding steady as the world’s most expensive league.
Across the channel, PSG’s salary bill rivals the Red Devils. Their £200m annual salary spend is all about Messi, Neymar and Mbappe: arguably the greatest and definitely the dearest attacking trio in history. So how do these clubs afford the wages of so many superstars? As we looked at in part 1, football clubs generate revenue through broadcast rights, sponsorships income and matchday income.
FIFA Financial Fair Play
The NBA, NFL and the other American sports leagues all have a salary cap. To ensure the league remains competitive, teams can only spend a certain figure on wages each year. It doesn’t quite work like that in football. For better or worse, Premier League wage bills can look like a small country’s GDP. That’s not to say spending is completely unrestricted.
FIFA enforces “Fair Play” regulations. Quite simply, clubs can not spend more on transfers and wages than their income. These rules are more about financial security than any competitive fairness but they do help slightly level an extremely lopsided playing field. Clubs with huge financial backings are still prevented from going into unreasonable debt to finance signings and salaries.
Even with Newcastle’s new royal owners and their £300b wallet, the club won’t have the licence to spend unconditionally until fans start going through the turnstiles and they claim prime-time televised games. After all, that’s how they generate revenue
With that in mind, let’s look at how Manchester United pays its wages. $MANU is a listed company meaning we have full access to their financial reports.
In FY2021, they earned £494m pounds in revenue, about 20% below their pre-covid figures. ~£320m of their revenue went straight to “employee benefit expenses”, aka player wages. This figure is higher than the wage figure stated above as it includes the management fees, loyalty bonuses and everything associated with player rewards.
Man Utd has actually run at a loss since the start of Covid. In 2019, it returned a profit of £18m.
Let’s break this down a little further. Almost half of the revenue clubs generate comes from sponsorship. TeamViewer sponsors Man Utd and 3-Mobile sponsors Chelsea for instance. These companies hope that fans consider them when purchasing specific software packages and phone contracts.
Ronaldo’s move to Juventus led to incredible success for Jeep as their 4WD brand was broadcast globally each time the bianconeri kicked off. In 2018 and 2019, Jeep (owned by Fiat Chrysler) broke sales records. Both years were new highs as the group attributes its success to the Juve deal. In 2019, Jeep agreed to triple their spending with Juventus to remain the main jersey sponsor.
So, every time someone purchased a Jeep across the world, they were indirectly funding a Ronaldo top corner screamer. Every bottle of Heineken sold at an overpriced city bar or African bottle shop aids in paying for your Champions League team’s star goalkeeper. After all, sponsors are only paying up because they see a commercial return on their investment. Arsenal fan? Book a flight to Abu Dhabi and maybe Mbappe will join next summer.
Having unwrapped sponsorships and wages, we complete our Economics of Football series with a look into transfers. With some youngsters worth as much as tech unicorns while Messi was available for free, it’s a wild world to unpack.