Revenue

Revenues

FIFA’S cash cow keeps growing

Professor Antonio Davila

Posted: June 9, 2014

Brazil’s World Cup 2014 is the largest sporting event in the world. It is mainly a sporting event where players will compete and in the process communicate a certain set of values that society finds attractive. But the World Cup also has a political aspect that has not escaped the Brazilian government with the continuous demonstrations of its population. People are questioning whether investing in new stadiums that might become white elephants is the best use of government money. The potential problems associated with the population discontent may transform an opportunity to showcase the potential of a country into showcasing its limitations, thus achieving the opposite effect for attracting investment than initially intended. Other governments are betting on the success of their team to take unpopular decisions and mask internal problems. Argentina hopes to mask the population discontent with a good performance at the Cup; but it might also use the opportunity of the popularity of the event to take hard decisions that will be easier to swallow with a wins. Inflation is running at almost 50% per year and the government needs to periodically depreciate its currency. The Cup can be a good moment to do so.

Granted the sporting and socio-political aspects of the World Cup, the tournament is today a huge business. The four year cycle leading to the 2010 World Cup in South Africa generated USD 4,189 million in revenues and USD 631 million in positive results. By the end of 2010, FIFA reserves stood at USD 1,280 million. A large part of these numbers come from the event itself. Revenues in the 2007-2010 period were up almost 60% from the 2003-2006 period. The main source of revenues is TV rights worth USD 2,448 million (2,408 million related to the World Cup). With audiences that peaked at 715 million during the Spain- Netherlands final and expected to surpass the 1 billion mark for Brazil’s final, life video is a unique opportunity for brands to associate themselves with the passion that football creates almost everywhere in the world. Marketing rights—mostly sponsorship—generated an additional USD 1,097 million for FIFA (1,072 million associated with the World Cup). The remaining revenues come from hospitality, licensing, and financial investments. The World Cup itself generated USD 3,890 million directly.

The balance sheet of FIFA is rock solid. Liabilities other than deferred income and accrued expenses are just USD196 million compared to USD1,280 million in reserves. The asset side is mostly cash and cash equivalents for a total of USD1,659 million.

The numbers for Brail 2014 are projected to grow another 20% to 40%. For instance, marketing rights are projected to be USD1,400 million for the World Cup, an increase of at least 40%. TV rights are expected to be USD2,600 million.

What do all these numbers mean? Football is a great business for FIFA. It is hard to find a company that grows at 15% per year for decades and shows a consistent profit margin of 15%. UEFA is also doing well with its flagship products, the Euro and the Champions League. The health of football federations is in sharp contrast with the financial problems that a lot of leagues and teams around the world face. UEFA’s financial fair play is a step into matching the quality of football managers with the quality of football in the pitch.

The World Cup offers a unique product to reach global audiences that nobody else can offer. Companies are willing to pay large amounts of money to reach this global audience. Football gives these companies a relationship with fans that no other product can give. The product is so unique that the best marketing minds are working to reach these fans even deeper to shape their consumption patterns.

The profitability of FIFA speaks to the quality and uniqueness of the World Cup, but also to FIFA’s ability to have created probably the best sporting product in the world. Of course, FIFA has not done it alone; but it seats at the top of the football hierarchy. But its profitability also highlights how the resources that football generates are being reinvested in society. FIFA’s profits and reserves are very large for a non-profit organization. Should FIFA do more for society and reinvest a larger amount of resources? Why does FIFA need to maintain such a large amount of reserves? Does the role of FIFA go beyond football to include the values that football communicates? Should FIFA open up to its fans for them to offer ideas on how FIFA can use its resources, both physical as well as intangible, to make a difference in football and society?

About Professor Antonio Davila

Professor Antonio Davila teaches courses in innovation management, entrepreneurship, management control, and sports management at the master and executive education levels. His sports management course has been running for seven years in the MBA program. He has developed teaching material with organizations such as FC Barcelona, Basketball Euroleague, Boca Juniors, San Diego Padres, Dorna, and UNESCO and WTA. Before coming to IESE, he was a faculty member at Stanford University. He received his doctorate from the Harvard Business School where he is currently a Visiting Professor.