Bayern’s profits shine in fickle football economy

November 19, 2012

By Olaf Storbeck

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

In the mid 60s, the executives of a minuscule football club from southern Germany, Bayern Munich, travelled north to Cologne to visit the country’s most successful team. They wanted to learn how to run a professional sports club. And learn they did. Bayern has dominated the Bundesliga, Germany’s professional league, ever since.

It has also shown that the sport can be run as a financially successful business. The club has made a profit 20 years in a row. Revenue in the 2011/12 season rose 14 percent to 332 million euros, with EBITDA up 63 percent to 69 million euros. And Bayern sits on a cash pile of 127 million euros.

Good regulation and steady ownership do matter. Bundesliga rules require that more than 50 percent of the voting shares in the professional team belong to the club and its members. This prevents star-struck Russian oligarchs, bored U.S. businessmen or spendthrift sheikhs to burn hundreds of millions buying professional teams on hazardous business plans. It also repels investors of the private equity type. Next to the club, two corporate investors (Adidas and Audi) each hold about 9 percent of the shares in the professional team.

Bayern’s careful avoidance of the celebrity carnival sort that is the norm at clubs like Real Madrid or Manchester United is another reason for its economic success. The club shuns vanity hires, runs a successful academy, and keeps a significantly lower salary bill than its competitors. Bayern only spends 50 percent of its revenue on players’ wages – against 70 percent for the average English club, according to Deloitte. On the revenue side, German rules limit the clubs’ over-dependence on TV rights, inducing prudent behaviour.

Bayern’s financial clout should keep growing. The club is currently looking for a third external investor to pay about 100 million euros for a 9 percent share of the professional entity. And a listing isn’t on the cards.

In the near future, new financial “fair play” rules implemented by the Union of European Football Associations (UEFA), will hamper all teams’ ability to go on unsustainable spending sprees. This will play to Bayern’s advantage, and further consolidate its standing both on the domestic and international stage.

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