The Neymar Deal and Soccer's Global Super Clubs

By John Bostwick, Managing Editor, Radius

The US and China may have the world’s two biggest economies, but when it comes to high-powered soccer leagues, the Old World still rules. According to a club licensing benchmarking report released this year by UEFA, European leagues have an 82 percent share of the world’s player market value. To put that into perspective, the players in the top-flight leagues in all of North and Central America make up 4 percent of the global player market value, with all the players in African leagues making up just 1 percent. Of the 30 top soccer leagues in the world ranked by player market value, just six operate outside Europe.

And yet, the economic and qualitative dominance of European soccer leagues — particularly those in England, Spain, Germany and Italy — can sometimes mask the fact that prominent soccer teams, like all major businesses, are far from domestic-only operations. The global reach of brands such as Chelsea, Arsenal and AC Milan has attracted investors from around the world. A summary of the UEFA report indicates that “44 clubs in major European leagues are now under foreign ownership, by owners from 18 nations.” The workers themselves are no less globally diverse. The hugely popular English Premier League, for example, has players from 65 different nations, with expatriates making up 70 percent of the player pool.

In short, player talent is not concentrated in Europe any more than wealth is, and top teams are willing and able to spend huge sums of money on player salaries, to win games and to enhance their global brands. There are no salary caps in European leagues as there are in most US sports, which has led to huge imbalances in team payrolls, with some teams accumulating massive debt in a kind of arms race between soccer superpowers.

The UEFA report notes that as recently as a decade ago, “sponsorship and commercial revenues were concentrated on shirt sponsorship and kit [i.e., uniform] manufacturer deals, some merchandising and a small number of local sponsorship deals.” This business model remains in place for most teams. But for a select group of global brands, the economic landscape is expanding exponentially, just as it has for corporate giants like Google, Apple and Amazon.

The report explains that a handful of “global super clubs” such as Real Madrid, Bayern Munich and Juventus, are able to use their brands to acquire sponsorship deals, TV contracts and commercial partnerships across the globe, opportunities that simply aren’t available to clubs with smaller operating budgets and regional brand recognition. The reports adds that “this is enabling those global super clubs to monetize their huge supporter bases, which extend around the globe and which can be accessed far better through social media than was ever possible through traditional marketing in the past. These supporter bases are growing inexorably, powered by star players, overseas tours and regular participation in the UEFA Champions League group stage.”

These economic realities, along with the free-spending ways of super clubs, led UEFA to approve the financial fair play (FFP) rule in 2010, which seeks to protect the integrity of competition and prevent player hoarding. According to a UEFA Q&A, FFP essentially means that teams in European leagues “have to prove they have paid their bills” and meet requirements “to balance their spending with their revenues and [restrict them] from accumulating debt.” Teams that don’t comply with FFP are subject to fines and other penalties.

The report says that FFP has had a positive effect on curtailing irrational spending in European soccer. According to the report summary, the “worst [financial] excesses have been curbed, with the number of clubs with a single-year loss of more than 45 million euros falling from 11 clubs in FY11 to four clubs in FY15.” Moreover, 1.3 billion euros have been “added to the balance sheet value of fixed assets” during that span.

Andrea Traverso, head of club licensing and financial fair play at UEFA, cautions in the report’s introduction that despite recent strides this is no time for complacency. He writes: “The footballing landscape is changing quickly, with new investments taking place at a speed which has not been observed before. … With many concerned about competitive balance within and between leagues, UEFA, together with its stakeholders, will need to continuously review and adapt its regulations to this fast-changing environment, bearing in mind that overspending and unsustainable business models cannot be the answer to financial inequality.” [My italics.]

One wonders what Traverso thinks about the recent transfer of Brazilian striker Neymar from the Spanish super club Barcelona to the French super club Paris St-Germain (PSG). For US readers unfamiliar with the concept of transfer fees, they essentially represent a buyout price, or the amount a team that wants to acquire a player from another team must pay the seller. Neymar’s transfer fee was set at 222 million euros, or $263 million. PSG, through Neymar’s lawyers, paid the transfer fee to Barcelona, after first being rejected by the Spanish league office, which refused to accept the payment amid concerns that PSG was breaching FFP rules. Barcelona itself has also raised concerns over PSG breaking FFP protocol by financing the deal with their own money rather than club revenues.

For the first time in FIFA history, a transfer-fee sum eclipsed the previous transfer-fee record amount by more than double. In addition to the buyout, PSG must also pay Neymar’s agent (who happens to be his father) 10 percent of the transfer-fee amount, and of course pay Neymar’s five-year salary. “Add it up,” The Los Angeles Times explains, “and PSG spent well over half a billion dollars [$613 million] on a striker who never led his previous team in scoring.”

An article in Quartz puts PSG’s investment in context of other global business transactions, noting that “the Neymar deal would rank pretty high in the list of corporate M&A deals in Europe so far this year.” It adds that the transfer fee alone is similar to the prices paid to acquire “multinational companies that employ thousands of workers and generate hundreds of millions in annual revenues.”

The Neymar deal has already generated countless media commentaries and will probably do so for years to come. Many decry it, including the CEO of a Chicago-based sports business firm, who told The Washington Post, “There’s no way that it makes any economic sense. It’s insane. It’s beyond insane.”

Perhaps surprisingly, some have already defended the move purely on economic grounds, primarily because of the reach of global super clubs, including large and growing markets in China, the US and India. The LA Times article notes that social media plays a prominent part in promoting the global access of these clubs, and that, for example, the highest concentration of Arsenal’s Facebook fans is in Ethiopia. An economist at the University of Michigan told the Times, “For global soccer, there is the means to monetize this. It’s really how many eyeballs are you dragging? How many clicks are you dragging to your site through having this individual? And Neymar is obviously worth it.”

As for Neymar’s effect on PSG’s on-field performance, it’s difficult to justify the move. Many have noted that soccer is a so-called weak-link game, meaning essentially that even teams with a significant number of high-quality players can be undone by a single mistake-prone teammate. Barcelona fans will immediately grasp the truth of this. Last year’s team boasted the best attacking trio in the sport’s history with Neymar, Lionel Messi and Luis Suarez, and yet Barca’s occasional defensive lapses prevented the team from winning La Liga and from advancing past the quarterfinals in the 2016-2017 Champions League. (Coincidentally, it took a last-second, borderline-miraculous goal from Neymar to get by PSG in the round of 16.)

In any case, it’s difficult for me (and, from what I’ve read, most commentators) to believe that PSG is suddenly a serious threat to win the Champions League simply because they’ve added a single player, no matter how good he is. That said, Neymar’s move has already encouraged one of the two best fullbacks in the world — his countryman Dani Alves — to move from the Italian super club Juventus to PSG, so Neymar has already positively affected the quality of the roster in more ways than one. (It should be noted that PSG already dominates its domestic league, having won four of its last five titles. Presumably the team doesn’t need to spend more than half a billion dollars on a single player to continue that trend.)

There is one other element to the Neymar deal that also speaks to the changing nature of global super clubs and to the global economy itself. PSG is not only a foreign-owned organization, it’s state-sponsored one. PSG is owned by the Oryx Qatar Sports Investments fund, part of Qatar’s government. An article in Eurosport notes that the team’s Qatari owners have been publically stating their desire to win a Champions League trophy since they bought the club in 2011. Behind the scenes, however, the Neymar move may amount to an act of diplomacy as Qatar endures ongoing political conflict with its neighbors and accusations that it supports “Islamism.”

A University of Salford professor told Eurosport, "Neymar’s PSG move, while beneficial to the French club, may be motivated by the political statement it makes and the soft power influence it is likely to have. At a time when the likes of Saudi Arabia want the world to be talking about Qatar in negative terms, Doha has become a focus for the biggest story of the year in the world’s favorite sport.” An article in Bloomberg echoes that point, noting that Qatar “would get a lot of goodwill in France if PSG did well with the Brazilian playmaker” and that “this kind of popular diplomacy is one of the best chances for the emirate to build trust in the West, which it needs like never before.”

State-sponsored owners also distort the market with their deep pockets. The record-breaking Qatar-backed Neymar deal is strongly reminiscent of cross-border acquisitions by state-supported Chinese companies that have inflated global M&A markets in recent years. Long-time Arsenal manager Arsene Wenger laments the Neymar deal, telling The Sun, “Once a country owns a club, everything is possible. … And, of course, we cannot compete at that level. This transfer is the consequence of the ownerships which have completely changed the whole landscape of football in the last 15 years.”

Wenger and other members of the old guard may take some solace in noting that the era of irrational cross-border acquisitions by Chinese companies may be coming to an end, as Beijing looks to rein in its free-spending privately-owned companies. Soccer’s economic, regulatory and political forces may also shift, so that we look back on the Neymar deal as a remarkable spike in what one club was willing to pay to acquire a single player. Over time, though, player salaries and transfer fees rarely stagnate, let alone plunge, and it’s probably more likely that the deal represents the new normal in the changing world of soccer’s global super clubs.