The reason I’m even bothering to report this (to my knowledge, I’m the only blogger on the Offside who even cares about club finances) is because economic development is responsible for Lyon being where it is – and where it will be in the next few years (read a more thorough overview on club finances here). There are no rich investors to aid Lyon in their quest for global domination. Every penny the club has ever earned has been due to the brilliance and dedication of Jean-Michel Aulas.

We love you, Jean-mimi.

Anyway, so here’s the good news. Lyon’s revenue has jumped 28% to reach €214.1m (the previous year it was at €166.1m). Excluding sale of player contracts, the revenue is €140.6. Net profit is up by 16% at €18.5m. This is after paying €10m in taxes, btw. For those of you who follow clubs in Serie A and the EPL, where clubs are regularly in the red – yes, it is possible to make a profit.

As most of you know, Lyon is the first French club to be floated on the stock market, which it did in February 2007. OL Groupe has reported it as a success, with offers oversubscribed 6.5 times. OL Groupe raised €90.6m. As of June 30, 2007, net cash stands at €128m and shareholders equity at €151m.

Third and fifth columns represent percentage of total turnover (revenue).

BREAKDOWN

Gate receipts (ticketing): This went up 2.4% to bring in €21.5m (due to the fact that 27 home games were played at the Gerland last season, as opposed to 26 from the season before). Despite the loss of possible revenue by missing out on the Champions League quarterfinals, Lyon’s participation in the French League Cup final offset that loss. A record 1,012,000 spectators came to the Gerland in 2006/2007.

Sponsoring and advertising: There was an increase of 29.8%, yielding €18.1m, thanks to improved deals with Accor Group and Umbro.

Broadcasting: This sector improved only slightly, going from €68.9m to €69.9m. Domestic rights increased but international rights fell by 12.4% for three reasons: Three French clubs participated in the Champions League in 2006/2007, Lyon did not participate in the quarterfinals of the Champions League, and the French share of European rights declined.

Other sources: This includes merchandising, derivative products, OL Images, and others and brought in €31m, up 30.6%. Lyon sold 200,000 shirts in 2006/2007, up from 110,000 the season before.

Sale of player contracts: This totaled €73.5m, a rise of 91.3%.

What Lyon will do with the money:

The bulk of this money will go towards the building of OL Land, which includes the new stadium (more details here). Despite facing some opposition from the Decines community, the target is to start building by September 2008. Once building starts, the club will look into the sale of marketing rights (including giving the stadium a name). In fact, the club have already taken a step in that direction by closing a ten-year deal with Sportfive that is worth €28m. Sportfive, a subsidiary of Lagardere Sports, helps clubs broker deals with companies over stadium naming rights.

The new stadium will cost between €250m to €300m.

Additionally, Lyon are building a new, state of the art academy building according to the strictest environmental guidelines. Given that 9 out of the 27 players on the professional squad are homegrown, Lyon would like to confirm their role as developers of elite players. Plans are to open this building by June 2008.

Outlook:

Given the club’s growing platorm not just in France but also in Europe, OL Groupe are attempting to match the needs of the club by providing a stable and ever-increasing source of income. Already the results are visible, with Lyon a regular member of the top 20 richest clubs in the world, both in terms of revenue and marketability.

The goal is now breaking the top 10.

Brand value listed in millions of euros:

1. Real Madrid (Spain) 1,063
2. Barcelona (Spain) 948
3. Manchester United (England) 922
4. Chelsea (England) 828
5. AC Milan (Italy) 824
6. Bayern Munich (Germany) 727
7. Inter Milan (Italy) 715
8. Arsenal (England 712
9. Juventus (Italy) 709
10. Liverpool (England) 645
11. Lyon (France) 453
12. AS Roma (Italy) 441
13. Schalke 04 (Germany) 436
14. Ajax (Netherlands) 368
15. Rangers (Scotland) 332
16. Valencia (Spain) 319
17. Benfica (Portugal) 318
18. Celtic (Scotland) 315
19. Stuttgart (Germany) 288
20. Werder Bremen (Germany) 275
21. Porto (Portugal) 255
22. PSV Eindhoven (Netherlands) 242
23. Sevilla (Spain) 235
24. Villarreal (Spain) 234
25. Lille (France) 206

Strangely, eleven seems to be Lyon’s lucky number because that is the same position they occupy on the list of the richest football clubs (based on yearly revenue).

At first I got excited at seeing tangible proof of Lyon’s journey into becoming a big club, but there are two things to keep in mind. First, the gulf between 10th and 11th place is nearly 200 million euros (whereas between 11th and 12th it’s like twenty). While I have no doubts that Lyon will pull away from Roma and Schalke, it will be a very long time before they can dislodge Liverpool. It’s the same story with revenue as well.

The second thing to keep in mind is that this is an academic survey and has very little impact on actual business. In fact, I think BBDO’s ranking is kind of weird because 25th is Lille. I like Lille a lot, but how can they be more marketable than Marseille?

Then again, I’m getting my degree in virology, not business, so what do I know?

1 – Big European clubs have a lot of titles. In this case, Lyon is not a big club. Their successes have only been recent, and their six domestic titles are paltry compared to the silverware clubs such as Juventus have racked up. But don’t despair too much. Chelsea is even less titled than Lyon.

On the French front, neither Marseille nor PSG are impressive in this regards either. Marseille have only eight league titles scattered throughout the past seventy years and only one Champions League win in 1993, though to their credit, they did make the UEFA Cup final a few years ago. PSG’s prize list is sadder, with only two league wins and one UEFA Cup Winner’s Cup in 1996.

So I guess it’s fair to say that there aren’t any teams in France with a lot of titles. Just clubs that dominate during a certain period of time but eventually sink back into ignominy. Hopefully this will change with time, as Lyon cannot aspire to greatness while playing in a (relatively) mediocre league.

2 – Big European clubs have a long history. Lyon doesn’t meet this criterion either. They only recently appeared on the international scene. The club’s European history (before 1999) consisted of sporadic participation in European Cups. They didn’t come near to winning a domestic title until 1996.

In France, no team can claim to have “history” like Real Madrid, Juventus, and Manchester United. Previously strong French clubs like Reims are currently languishing in Ligue 2 while St. Etienne and Bordeaux are content with mid-table obscurity.

3 – Big European clubs are financially strong. In this instance, Lyon is a big club, with a budget bordering around 200 million euros. Despite what Aulas wants the world to believe, Lyon are quite rich. Thanks to their smart recruitment policy, Lyon capitalized by selling their best players (basically getting more than market value) while also buying cheaply. While Lyon still have a long way to go before they can spend like Barcelona, should Lyon’s economic development continue at its current pace, that day isn’t long in coming.

4 – Big European clubs have strong infrastructures and a good public. Whether Lyon have both is debatable. The Stade de Gerland can hold only 40,000 people. Big European clubs have stadiums that are 60,000+ and are almost always sold out. Additionally, these clubs are well established and popular throughout the world, selling shirts in countries as obscure as Sri Lanka. At the moment, Lyon cannot compete, but Aulas has been taking steps to increase the club’s marketability. Lyon have been growing their fanbase in Asia thanks to tours in Japan and Korea, and their performances in the Champions League is winning over admirers all around the world. Also, now that Lyon is floated on the stock market, the funds will be used to build a higher capacity stadium for the club (Project OL-Land).

The vélo: home of the most passionate football fans in France.

As for the fanbase…in this respect, Marseille is the winner. No place in France is quite like the Velodrome, and their fans are among the most passionate in Europe. Lyon’s fanbase, on the other hands, is considered to be “cold.” Many critics are convinced that if the club started losing, the fans would disappear as well. I don’t believe that, though I agree that Lyon ultras could, well, become ultra. It should also be kept in mind that Lyon was an unknown until ten years ago, and a club has to start from somewhere. As the club become more successful, more fans will appear.

5 – Big European clubs attract “stars.” There’s no point in denying that Lyon can’t attract big players. But there are good reasons for this. First of all, the wage problem. Though Lyon pay the highest wages in France, they can’t compete with Spanish, Italian, and English clubs because of high French taxes (read more on that here).

Secondly, location also plays a role. While Lyon is the second largest city in France, it holds no candle to Milan, London, Madrid, Barcelona, etc, in terms of entertainment and cosmopolitan glamor.

6 – Big European clubs inspire fear in the Champions League. In this case, Lyon qualifies with room to spare. Just because Lyon have a tendency to choke in the latter stages of the tournament don’t stop them from scaring European giants such as Barcelona, Real Madrid, Bayern Munich, etc. Before the knockout round draws took place this past December, most players and managers wanted to avoid Lyon the most. And you can be sure that out of all the second seeds for next year’s Champions League, Lyon will be considered the most dangerous.

It’s for a simple reason, actually. Even at their worst, Lyon are quite difficult to play against, mostly due to a strong collective mentality than to any star player. And along with Milan, Lyon are the only club to reach the Round of 16 consecutively for four years, as well as the quarterfinals three years in a row. Their superb record in Europe (29 wins, 13 draws, 8 losses in the last five years) almost makes one forget that their rare losses come at the worst moments. This year’s loss to Roma was the worst Lyon performance I’ve ever seen and was quite shocking to the football world (no disrespect to you, Chris, but Lyon were the ones expected to advance to the quarterfinals, not Roma. Talk about a backfiring plan).

Feel the love.

I estimate that will take another few years before Lyon leave the group of second tier clubs (like Sevilla, PSV, Roma, Atletico, Benfica, Porto, etc). First, Lyon need to win the Champions League, or at least make the finals. Secondly, having a new stadium of their very own will help financially as well as aesthetically (great clubs don’t play in small stadiums!).

Also, by 2010 Karim Benzema and Hatem Ben Arfa will be full-fledged amazing footballers (assuming we can hang onto them until then). Call me Arsene, but I really think Lyon’s “kids” can lead the club to greatness. Of course, by then Juninho will have retired, but since the club is abandoning the 4-3-3, his loss shouldn’t make too much of an impact on the pitch (though we’ll miss those free kicks!). Also, Aulas needs to be in charge forever. I can’t imagine OL with any other president, though I can imagine a lot of different managers.

What do you guys think?

But before I get carried away, a warning: what follows is an in depth look into the economic side of Olympique Lyonnais. As a scientist-to-be, I love numbers and percentages, and I’m curious about where Lyon’s money comes from (beside Roman Abramovich’s wallet). So if you have no interest in the business side of things, visit Perez until I post a less technical entry.

And now back to the money…

This blog entry that Bob posted yesterday got me thinking, what exactly is Lyon’s economic situation? Since it’s a French club, there aren’t debts or anything remotely disreputable in their financial dealings, and as long as the club stays out of scandal, I suppose most people don’t really care how Lyon make their money as long as they do.

But I was genuinely interested, so I did a bit of research.

For those of you unfamiliar with how Lyon’s finances work, let me give you a quick overview. The club, as well as other subsidiary divisions, is owned by OL Groupe, a holding company created by Aulas in order to spur the club’s economic development by bringing in additional sources of income. Aulas’s move to make Lyon into a business was quite controversial at the time because French clubs tend to be “family run” (which means low on profit but high on the feel-good factor).

And yes, Aulas is the founder, president, and main shareholder of OL Groupe.

Deloitte has been charting Lyon’s financial progress during the past several years.

GENERAL CLUB INFORMATION

Revenue (from 2007): €166.1m
Net income: €15.9m
Revenue Sources: 43.1% TV broadcasting; 23.1% transfers; 12.8% derived products; 12.7% ticketing; 8.4% sponsorships.

Lyon’s current value is estimated to be €312m. It’s a far cry from clubs such as Real Madrid and Bayern Munich, but three years ago, Lyon was worth approximately €145m. The margin of improvement is a rather big one (especially considering that some top clubs have actually dropped in value).

For comparison’s sake, Olympique de Marseille recently joined the list of the top twenty five most valuable clubs in the world for the first time in years. OM is worth about €117m.

OL’s revenue increased by nearly 80% since 2004. In the past year alone, Lyon jumped from being the fifteenth to the eleventh wealthiest club in the world, with a €40m increase in revenue and a 65% increase in value. While the gap between Lyon and tenth place Liverpool is still quite significant (€50m), should Lyon keep growing at their current rate, there is nothing to stop the club from entering the top ten in the next few years.

With ticket sales at their highest (an average L1 match day attendance is 38,500), and with a record number of season tickets being sold, Lyon have outgrown the Stade de Gerland and are planning to build a 60,000 seat stadium that will feature a retractable roof. In order to fund this project, Aulas lobbied the French government for the right to float football clubs on the stock market, a battle he eventually won last fall.

Lyon’s stock prices dropped during their barren period in February and March.

Last February, Lyon became the first publicly traded French football club, with shares priced at around €24. The initial offering was very successful (the shares were more than six times oversubscribed), and the club quickly amassed close to €100m, money which will be used to build their future stadium (to be completed by 2010). Aulas has already received interest from several companies wishing for the stadium to carry their name, but they would have to pay around €150m for naming rights, with Lyon paying for the remainder from their own funds.

Getting a new stadium built with the maximum of their own investment will ensure that Lyon won’t be saddled with large debts, and they will finally have the budget they need in order to compete with the richest clubs in Europe.

BROADCASTING

Despite being a hotbed of footballing talent, the TV rights in France, while substantial thanks to the current Canal+ deal (worth €600m), don’t compare to the Premiership’s billion dollar payouts.

By the end of this season, West Ham will have earned the same amount of money from broadcasting as Lyon (approximately €45m). Lille, Marseille, and other clubs will receive significantly less than that.

It also doesn’t help that foreign broadcasters aren’t interested in buying rights to L1, an inherently defensive league filled with some of the best goalkeepers and defenders in the world. Spectators don’t want to watch ninety minutes of defending – they want to see lots and lots of goals. Fans would rather watch a spectacular loss than a drab 0-0 tie.

But despite these handicaps, Lyon have the highest media profile of any Ligue 1 club. Last year, they were the most televised French team with an average audience of 3.3 million people per game, and of the top ten French audiences generated by football games, those involving Lyon attracted the eight highest audiences.

Lyon also get money from UEFA broadcasting rights. In 2005-2006, Lyon raked in an extra €25.3m from Champions League participation, receiving the third highest amount of money behind Barcelona and Arsenal, the two finalists (not sure why since Lyon went out in the quarterfinals…).

SPONSORSHIP

Two years ago, Lyon signed a four year deal worth approximately €12m per season with Renault Trucks – a record for French football and comparable with some of the largest deals in Europe. This past summer, Lyon also signed a deal with Accor Group for €9m per year for the next three years.

Umbro provide another €7.6m per season. Aulas has flirted with going to a different kit maker – both Nike and Adidas have offered – but Lyon are pleased to be associated with Umbro and recently extended their contract until 2013, in a deal worth €45m.

In the next few years, Lyon will be limiting the number of partnerships and will allow only one shirt sponsor (Novotel) for better merchandising.

PLAYER TRADING

This is a significant source of income for Lyon, especially compared to other clubs. According to OL Groupe:

The Club’s sporting policy is based on gradually putting together an increasingly successful squad of players, anticipating requirements and avoiding any hasty, disruptive and uncontrolled change. It has sold four or five players per year in the last five years, and players are recruited on the basis of squad requirements.

That basically means purchasing inexpensive talent and then selling them off for higher prices a few years later. Last summer, Lyon earned €47.4m in player sales (Diarra, Nilmar, Monsoreau, Pedretti, Clément, Frau). The outgoing players were replaced by fewer but more talented footballers (Kallstrom, Squillaci, Toulalan, and Alou Diarra) for €31m.

Additionally, the club’s goal is to increase the quality of their players while still maintaining their successful trade policy. Their plan has been working so far because Lyon is classified twelfth in terms of the marketable value of their players, with a manpower estimated to be worth €172.6m. It’s important that this number continue to increase because higher profile players make the club more valuable to potential investors.

Despite being 12th in Europe, OL players are twice as valuable as their French counterparts.

HANDICAPS

Wages: Taxes in France are atrociously high. Any player who comes to play in L1 will see half their salary disappear, which means French clubs have to spend more money on wages (Lyon’s wage bill eats up a higher percentage of their budget than in clubs such as Manchester United and Real Madrid). For example, to pay a player 100, a club in England will have to pay 115, in Spain 130, in Italy 150, and in France 200. So smaller clubs such as Lille, Nantes, and Nice can’t afford to keep their talented players for more than two or three years because other clubs tempt them away.

Lyon have more of a chance as they inevitably attract the best French talent. Not only are they the domestic superpower and a growing name in Europe, but just as important, they pay the highest salaries in L1, with twelve of their players among the twenty most well-paid footballers in France. It also helps that Aulas is notoriously difficult to deal with when it comes to selling his players.

However, Lyon have a hard time attracting players from foreign leagues because they can’t match salaries paid even by clubs such as Atletico Madrid. Despite all their economic growth, Lyon still can’t foot David Trezeguet’s wage bill, or even Alberto Gilardino’s.

Club Debt: The Direction Nationale de Control de Gestion (DNCG) is the LFP’s watchdog group which monitors the fiscal responsibilities of the clubs. Unlike in England, Spain, Italy, Portugal, etc, French clubs are strictly regulated financially, with all transactions undergoing scrutiny to make sure they aren’t going into debt by financing big money buys they can’t afford. Nor are the clubs allowed to end the season with a deficit (or they face relegation and other sanctions). So they can’t embark on huge spending sprees with debts to be paid for later by rich owners. While this does make French clubs financially stable (no Glazers, Abramoviches, or any other billionaires in sight), it also means that the clubs can’t take risks either.

FUTURE PROSPECTS

Can Lyon overcome the financial limitations imposed upon them by France? Not anytime soon, no. In fact, as long as the DNCG exists, OL will never be on equal financial footing with clubs in the Big 3 leagues no matter how much money they earn (damn taxes). And until the rest of L1 catches up in terms of money and development, French football will continue to be lopsided.

However, the DNCG isn’t a bad thing. And I’m convinced that if French football should overtake the bigger leagues, it will because those leagues – which lack the necessary safeguards – could collapse financially (like what happened to Leeds United). Debts accumulate over time, and not even having a billionaire owner can pay them off. At least Lyon never have to worry about being in the red.

…..Anyone still awake? If you are, thanks for bearing with me as I explored the really boring topic of Lyon’s finances. I promise, something more interesting next time, like a picture of Fred’s wife or something.

Sources:

Deloitte Football Money League, 2006 and 2007
Forbes, “The Most Valuable Soccer Teams, 2007”
International Herald Tribune, “Lyon Plans to Move Into 60,000-seater Stadium”
Manchester Evening News, “Umbro Get Lyon’s Share”
OL Groupe, Prospectus
Reuters, “Olympique Lyon Boosted By Successful Share Float”
UEFA, Financial Report for 2005-2006