Is Lionel Messi’s salary offside?
The Barcelona footballer Lionel Messi has racked up a spectacular score sheet. A leak to Spanish media reveals that his pay packet is every bit as impressive. Fans cheer Messi the goalgetter, but Messi the magnate inspires mixed feelings. One can see why disclosure of a four-year contract worth over €500 million (£438 million) rankled. Stadiums are closed, lower league clubs are folding, and Messi’s own club posted a full-year loss. In the circumstances, how can earning so much be sporting?
Explaining outsize rewards to athletes is not easy. But, as Adam Smith pointed out more than two centuries ago, extravagant wage differentials make sense in some professions. Where the risk of failure is high, so too need to be incentives: “In a perfectly fair lottery, those who draw the prizes ought to gain all that is lost by those who draw the blanks. In a profession where twenty fail for one that succeeds, that one ought to gain all that should have been gained by the unsuccessful twenty.” To captain FC Barcelona is one of the most glamorous positions in world football and, since only one person qualifies at any one time, then, following Adam Smith, winner takes all.
Economists working for Catalan consultants Diagonal Inversiones have applied a different yardstick to measure what Messi is worth to his employer. They estimate that advertisers and merchandisers pay a premium of 50 per cent for the right to include the name of Messi on their contract. And based on that assessment they calculated that FC Barcelona, through use of the Messi name, gains an annual surplus of €130 million.
So should we be cheering on Messi to go for a raise? Following this inference is self-defeating, however. What is good for Lionel Messi is not necessarily good for FC Barcelona.
The Deloitte Football Money League 2021 has published a breakdown of Barcelona’s income: match day takings were €126 million; broadcasting €249 million, and merchandising €340 million. Notwithstanding its ample resources, the club in June 2020 posted a full year loss of €97 million. Lionel Messi’s finances have outpaced those of his club.
As with any football club, Barcelona’s most important asset is its squad and that is where it spends most of its money. Players’ salaries take into account income from broadcasting and merchandising, even though the activity where they apply their skills – match days – accounts for less than one fifth of total revenue. But since the club’s cachet rests on Barcelona’s sporting success, one can see the rationale for factoring broadcasting and merchandising revenue into player salaries. Barcelona pays players fully 69 per cent of its income.
But there is a key difference between league tables and viewer ratings.
Deloitte’s Football Money League 2021 points out that there “are further complexities regarding the composition of broadcast revenue. The revenue distribution model in most leagues includes an element of reward that is based on a club’s final league position.” In other words, the better a club performs on the pitch, the greater its leverage in contract negotiations with broadcasters. For clubs at the top of their leagues, a virtuous cycle sets in. The greater a club’s exposure in broadcasting, the greater its clout in merchandising, and the deeper its pockets.
Clubs stay at the top of league tables by hiring and hanging on to top players. Top clubs tap off-pitch earnings to outspend lower ranked teams. Competition authorities might wish to have a look.
In many industries, whenever a group of fewer than five companies seems to be protected by barriers to competition from market entrants with lower endowments, competition authorities investigate on a presumption of oligopoly. It is noticeable that across Europe, top football teams have been showing their heels to lower ranked competitors and that there is little movement in the ranking of elite teams. Competition in the business of football, in financial terms, no longer seems to be contested on a level playing field.
Fault lines in the sector’s business model have been exposed by stadium closures and game cancellations. A spectator sport without spectators loses its fizz and, in short order, its add-on earnings. Deloitte notes that revenue at the top twenty Money League clubs last year declined by 12 per cent (€8.2 billion after €9.3 billion in 2019). For lower ranked clubs with a smaller capital base, the situation is even worse. Some may be forced to close. Government has come forward with support measures for ailing clubs, but compared to the spending that circulates during transfer windows, the sums involved are a drop in the bucket.
Looking ahead to a post-pandemic economy, there is a case to be made for resetting the business model of the football sector.
This would ensue from adjusting the formula for sharing out broadcasting revenue. The more generous the trickle-down of income to teams with lower rankings, then less exigent would be the need for government to support teams with a franchise that is local rather than international. Competition authorities could impose measures that ensure Davids have a fair chance of beating Goliaths.
And Lionel Messi would surely be too much of a sportsman to object to a contract that rewards his core skills, rather than a skewed industry structure.
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