She did it. Nina is a pure diamond. The 32 brutal training hours a week to put down the ultimate gymnastics exercise on the biggest stage of her sport, have paid off. Goosebumps. Until you read that she earns 1,200 euros…per month. The question is not whether she is being paid too little. That’s obvious. The real question is whether Kevin De Bruyne’s wages are justified: 2,908 euros … per hour.
It’s a question that most commentators fit into. The absurd wages of top footballers are hidden under a number of emotional arguments and half-hearted – not really researched – financial reasons.
Certainly not the efforts they put in
The efforts made do not serve as a basis. When you hear about this Remco Evenepoel, who has switched from football to cycling, he now trains 3 times as much, which corresponds to the number of hours that Nina trains. That would mean that Nina would have to earn 75 million euros annually. Kevin catches just over 25 million euros per year.
The rational arguments then
The first is the market value. There is always a sheik who can lay down more. So “why not?” shout the football agents in unison. The other thing the stakeholders are waving at is a bit more subtle. That those top players add return to the football club that hired them. This is hard cash.
Let’s take a closer look at these 2 arguments and see if they make sense for Kevin De Bruyne and his club Manchester City.
Capitalist Europe versus Socialist America
First and foremost, we always mistakenly think that Europe is a more socially just continent than America. The reality is that there is no greater capitalist battlefield than European football, where there are no controls. The recent Financial Fair Play rules have drawn some lines to avoid the excesses. Yet we are miles away from the regulated payroll system they operate in the United States.
In the United States, there is a salary cap which may not exceed any team and which is fixed for each season. This applies to all major leagues MLB (baseball), NFL (American football) to NBA (basketball). In concrete terms, this means that a maximum amount may be spent on salaries. That salary cap is the same for every club. In this way it is avoided that – as is the case in Europe – a few clubs dominate the competition and you always have the same winners. In the past four seasons, both the NBA and the NFL have had four different winners. In the MLB, that even increases to nine different winners over the last nine years.
The Financial Fair Play rules in Europe were well-intentioned and would curb unfair competition. The big problem, however, turned out to be that the rich clubs always did everything they could to circumvent these rules, while in the US the clubs have jointly agreed to combat distortions of competition. The American top clubs therefore earn handfuls of money every year while they have to scrape in Europe for an insignificant profit.
The CEOs of listed companies know all about it
It is the middlemen, the brokers who maintain this unlikely system. Club owners like to participate because they can’t get rid of it or because they make money from it. Because it is nothing more than a system. A similar perverse mechanism can be found in the wage determination of CEOs of large listed companies where benchmarking ensures that the system is maintained.
Benchmarking is an ingenious trick, which does not consider what the CEO has added to the company, the well-being of society and its employees. The remuneration committee prefers to look at what the boss earns from the competition.
The unbearable salary burden
Those out of control salaries deserve yet another approach. Let’s compare the biggest league in the US – the NBA – against our top football leagues. On average, American basketball clubs pay 58 percent of their wages in salaries. The top teams in the NBA pay only 52 percent of their earnings in wages.
If we look at the major European football leagues, we see that before the pandemic – the situation has deteriorated considerably since then, but we do not include this in our analysis – the German clubs were the most economical. 54 percent of revenues went to salaries. The Spaniards spent 62 percent, the Italians 70 percent and the French an improbable 73 percent. FC Barcelona was the crown for the clubs. In the 2018-2019 season, 83 percent went into their players’ bank accounts. It should come as no surprise that the Catalan club is flirting with bankruptcy.
The second myth: the contribution of the top footballers to the profitability of the clubs
We have calculated 2 ratios for you – based on the available income statements that indicate whether the arrival of Kevin De Bruyne, the biggest star in the biggest football league in the world – has benefited the Manchester City company. We make abstraction of the shareholder value created, which is booming for all clubs and companies in the current environment, thanks to exploding stock markets. Looking at this parameter, owner Sheikh Mansour – if he sells today – has done a good job. We now look at the profits that this company generates.
What profit?
Manchester has had a good turnover growth since 2015, which had been going on for several years. It rose from £398 million in the 2015-2016 season to £535 million in the 2018-2019 season.
However, if we now look at the profit that was extracted from this, we see a different picture. Here we look best at the net profit margin. Analysts calculate this ratio by dividing after-tax profits by sales. Then we find that for every £100 that is converted, Manchester City makes £1.7 in profit. In other sectors, this ratio fluctuates between a low 10% and a high 20%. City’s only achieved 1.7% in the 2018-2019 season. When Kevin took office in the first year in the 2015-2016 season, this was still a good 5%. Not really an improvement.
[*Voetnoot: We maken nog even abstractie van het belabberde resultaat in het seizoen 2019-2020, een gevolg van Covid 19, waar de club 126 miljoen pond verlies maakte.]
The very weak return on invested capital
The second ratio is the known return on capital which is calculated by comparing the profit against the invested capital. That ratio tells us how much the money that has been wagered actually yields. Here Manchester City achieves a fantastic 0.6%. They made a £10m gain on capital employed including debt of just over £1.4bn in 2018-2019. Again, 10% is the minimum for any self-respecting company. A top company even achieves 20%.
Top football players do not equal top returns
It is therefore difficult to argue that the purchase of a top football player makes a football company more financially efficient. Kevin De Bruyne certainly didn’t do it for Manchester City. Messi’s exorbitant salary drove FC Barcelona towards bankruptcy. Since Ronaldo played for Juventus Turin, the profit figures have also collapsed there. They went from a slight loss of 10 million euros in the 2017-2018 season to 27 million euros in the 2018-2019 season, not to mention the corona season 2019-2020, where the loss was deepened to just under 90 million euros. To reach more than 141 million in the 2020-2021 season, negative of course.
This analysis is not a personal reproach to the best Belgian footballer of the moment. It is heartily awarded to him. But we must stop arguing that there is a valid reason for this pay gap between our sports stars.
No one can explain with the best of intentions why Kevin earns 1,766 times more than Nina. Or why Nina only pays 0.06 percent of our star footballer’s exorbitant salary. As a society, we must continue to question this, especially because the inequality debate will become increasingly fierce.
The author Xavier Verellen is manager of QelviQ, an Internet of Things company (www.qelviq.com)
