Let’s Talk About Money

By: Inara | June 22nd, 2007

This post is about money.

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