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FEATURE | Financial troubles at Marseille – just how bad is it?

The Ligue de Football Professionnel’s (LFP) financial governing body, Direction Nationale du Contrôle de Gestion (DNCG), recently made public league and club financial results from the 2018/19 Ligue 1 and 2 seasons. The documents revealed €91 million in losses incurred by Olympique de Marseille and shed greater light on an agreement reached by the club with UEFA’s Club Financial Control Board in June of 2019. A settlement which restricted its ability to purchase players along with other measures designed to curtail spending.

OM’s losses are seeded in years of financial mismanagement, but became pronounced when the club made the decision to pursue Champions’ League football as a financial antidote rather than the austerity measures now imposed upon it by UEFA. The story has become a familiar one across Europe, but several key factors unique to French football influenced Marseille’s decision-making.

A Unique Environment

The losses in 2018/19 marked the third straight year in which Marseille had recorded a negative profit. The poor financial showings caught the eye of UEFA, who determined that the French club had broken financial fair play regulations. Meanwhile, the LFP, whose own guidelines restrict teams from posting losses for three consecutive seasons, is still expected to weigh in.

Financial Fair Play and the DNCG form a unique partnership and one, that in theory, would seem to have curbed Marseille’s behaviour. Loosely, FFP’s main focus is to encourage more rational spending from its licensed clubs in a bid to avoid the type of reckless outlays that have sent so many teams into financial ruin. The LFP, a precursor to FFP and often cited as its influencer, is more stringent in its financial guidance and is fixated on solvency. Because of this the proliferation of bridge loans for player transfers, as well as more long-term, loan-based, cash-infusions commonly seen in the English divisions are extremely rare in French football.

While encouraging financial sustainability, the rules imposed by the LFP are often seen as cumbersome when trying to navigate the largely unregulated global transfer market. French clubs are required to break-even and despite sides such as Marseille taking significant losses, the vast majority finish the year in the black. In the most recent 2018/19 report only three sides reported profit losses, one of which, Lille, severely minimised the damage on their balance sheet from a year-on-year perspective, while in the process of overcoming a spending problem similar to the one that Marseille are facing (more on that later). This runs in stark contrast to the Premier League, where it is common for clubs to operate in the red.

Despite being under the watchful eyes of both the DNCG and UEFA, clubs such as Lille and now Marseille continue to find themselves in financial predicaments. In large part this has to do with Ligue 1’s unique relationship, among the ‘Top Five’ European leagues, to the Champions’ League and more specifically, its television rights revenue.

TV Rights Money and Transfers

It is no secret that television rights money has become the most important cash generator for European clubs. This is especially true in Ligue 1 where it accounts for 47% of the league’s combined revenue. To put that in perspective, while still reliant on TV money, the Bundesliga clocks in at roughly 32%, while in Serie A that number is slightly higher at 38%.  

Despite greater dependence, Ligue 1 has the smallest TV rights deal of the ‘Top Five’ leagues. Last season’s fourth place side, Saint-Étienne brought in just over €42m in TV money, while La Liga’s fourth placed side, Valencia, earned roughly €79m.

In qualifying for the Champions’ League, Ligue 1 clubs have the potential to instantly double their broadcast revenue and in the process significantly augment their overall earnings. In every Top Five league the chase for Champions’ League funds is paramount, but in France it’s even more important. In 2018/19, Champions’ League broadcast revenue accounted for over 50% of both Monaco, PSG and Lyon’s total TV earnings. For Marseille that type of influx would mean a 55% increase in the club’s overall operating budget. 

To complicate matters, Ligue 1 has the fewest automatic Champions’ League places of any of the big five. With the top three Ligue 1 places guaranteeing a UCL berth, it gives each side a 15% chance of qualifying – compare that to 22% in Germany and 20% in the remaining leagues – this makes the pursuit of places all the more precarious.

Finally, nearly every Ligue 1 club posts an operating loss, which is then offset by player sales. This has had positive effects in that it has forced Ligue 1 clubs to produce, develop and field young talent at an enviable rate, but also means that any production line slowdown can have substantial financial repercussions.

Marseille’s Downturn 

OM’s current predicament was a by-product of all of the above and can be traced back to the 2015/16 season. It was at the end of this campaign, having finished 13th, that Marseille made to spend in its push for the Champions’ League. The 2015/16 season had seen the club post profits, largely on the back of significant player sales and the result was an embarrassing league finish.

Determined to avoid the same fate, Marseille reduced out-going transfers and posted a loss of €42m at the end of the 2016/17 campaign. It was risky, but the club had climbed to fifth and it was seen as enough of an improvement to double down on the strategy. This proved a significant turning point, as that summer Marseille would pour money into player salaries – inflating their wage bill by over €37m. This put the club further into debt, but with the expectation that Champions’ League football would arrive and significantly change the calculus.

It never came. In 2017/18 Marseille finished fourth, a single point behind Champions’ League bound Lyon and the result was a net loss of over €78m. This was the second straight season OM recorded losses – giving the club one year to turn around its financial outlook.

The trajectory was nearly identical to that of Lille, who at the end of the 2017/18 season posted losses of €140m after slavishly pursuing Champions’ League football. The northern French side came under close scrutiny from the DNCG and it took a €142m cash infusion, supported by JP Morgan and others, from owner Gérard López to save the club from LFP-imposed relegation.

Marseille found itself in a similar conundrum; bloated with unsellable contracts and incapable of raising sufficient funds through player trading, it seemed unlikely the club would be able to recover organically. Moreover, Marseille had recently finished one-point shy of third place and gone all the way to the Europa League final, before ultimately losing to Atlético Madrid. It could taste Champions’ League football.

Therefore, the 2018/19 season saw Marseille modestly increase its wage bill – determined to stay the course. It was a disastrous campaign; the club finished fifth – a full 11 points out of the Champions’ League places. The losses topped €90m and Marseille were forced to appear in front of UEFA’s club financial control board.

The Future

In an unexpected twist, Marseille have drastically improved in 2019/20; the appointment of André Villas-Boas as the club’s manager has paid off and OM presently sit second in the table – preparing for a UCL return.

Nevertheless, Marseille are still not out of the woods; the settlement reached with UEFA limits the club to 23 squad players next season as opposed to the standard 25. What is more, it requires it to restrict spending on player registrations and to be within €30m of a break-even position. Put simply, even with Champions’ League football, OM will continue to live through austerity. That is also the best case scenario – earlier this month UEFA appeared to suggest that Marseille had since violated the deal that the parties made together last summer and that they were reopening an investigation into OM’s conduct.

It is continuing to take the FFP and the DNCG to save Marseille from itself. Without these control bodies, there is a chance Marseille would have continued to accrue debt until the situation became truly dire. In this sense, both authorities served their purposes. And yet, at the same time it highlights the lengths clubs will go in search of Champions’ League riches and the covetous environment it creates – whereby simply qualifying at the top of the table is seen as an antidote to long-term financial and competitive woes.

More acutely it articulates how important it is to be in the Champions’ League and the economic gulf it creates domestically; as well as the precariousness of vast influxes of cash in what is a largely cash-poor environment.

Marseille are on the rebound in a season in which it was more-or-less assumed the side would have no chance of European qualification. Consequently, the restrictions forced the club into making more thoughtful sporting and business decisions. Hopefully they will learn from the experience, grow and avoid being back in front of UEFA in a few years’ time and future sides hold OM up as an example. The punishment could yet be more severe if this season is voided…

For an assessment of the overall financial state of play of Ligue 1 clubs following the latest DNCG filings, click here.

K.S.

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