An Analysis Of European Soccer Finances And Their Impact On On-field Success

Leon Corriea | MS-BANA | July 19, 2016
First Reader: Dr. Michael Magazine
Second Reader: Dr. Edward Winkofsky
An Analysis Of European Soccer
Finances And Their Impact On
On-field Success
CAPSTONE PROJECT

Abstract
Analytics is revolutionizing every industry it touches. From banking to manufacturing to
healthcare, every industry has been made better, more successful with the use of
analytics. The sports industry has been the latest to embrace analytics. The use of
analytics in sports is often referred to as the “Moneyball revolution”, alluding to the
famous book and movie of the same name.
This report takes a closer look at the business of soccer and how analytics can be used to
improve financial decisions that impact performance on-field. It identifies all the essential
levers that are involved in the financial decision making process at the top European
soccer clubs and, through the use of analytics, assigns importance to each one of them. By
recognizing the most important factors, soccer clubs can prioritize their efforts in
improving those areas that have the maximum impact on on-field success.

Table of Contents
Introduction..............................................................................................................................2
Revenue – All About The Money?........................................................................................... 4
Transfers – Personnel Matters..................................................................................................5
Wages – An Offer You Can’t Refuse........................................................................................ 8
Infrastructure – Home Advantage ......................................................................................... 10
The Future – Competing On Analytics.................................................................................. 13
Conclusion - Model Interpretation........................................................................................ 18
Closing Thoughts – The Final Whistle .................................................................................. 19
Appendix .................................................................................................................................20

Introduction
Leicester City – April 2015 – Bottom of the Premier League and facing immediate
relegation to the Championship (2nd tier of English soccer).
Leicester City – April 2016 – Premier League champions.
It has been a stunning rise for a team that bookmakers had at 5000/1 odds of winning the
league at the beginning of last season. “Football, bloody hell!” Sir Alex Ferguson had
exclaimed when Manchester United dramatically won the Champions League final in
1999 with two late goals scored in injury time. One can only imagine what his reaction
would have been after witnessing Leicester clinch the title last season. It’s safe to assume
it would have been even more intense!
Many people will see Leicester’s rise as a chance occurrence, a once in a lifetime underdog
story that might never be repeated. In statistical terms, this would be an outlier.
However, that would be oversimplifying things and robbing Leicester their due credit. It’s
true – modern sport is competitive and has made it extremely difficult for outsiders to
break the status quo set by traditional heavyweights. Just a glance at the historic trend in
the number of different teams making the top four (the positions that get you a ticket to
participate in the Champions League – Europe’s elite club competition) will give you an
idea how difficult it is to break the mold:
Fig. 1: Unique teams making the top four in previous five seasons1

The number of different teams making the top four has steadily declined over the past
decades. This means that breaking the stronghold at the top is getting increasingly
harder. This just goes to highlight how much of a feat Leicester City achieved last season
in winning the league.
So how did they do it? It is true that a lot of it was down to the competition not being as
good as it has traditionally been. Chelsea, who won the league the previous season was
flirting with relegation for most of the season and eventually finished 10th, their lowest
finish since 1996, when they finished 11th. Manchester United, who is still struggling to
overcome the retirement of their longest serving manager in Sir Alex Ferguson, finished
5th and outside the Champions League places. Manchester City, who in recent year has
enjoyed a revival because of substantial investment from their Abu Dhabi based owners,
struggled to sustain a challenge and finished 4th. Arsenal, who was top of the league mid-
way through the season, suffered their typical end of the season collapse only to pip
Tottenham to 2nd place on the last day of the season.
Leicester also benefited from playing fewer number of games than its rivals because of not
being part of European cup competitions. They played a total of 43 games last season as
compared to an average of 56.7 games that their rivals played last season. A fewer number
of games meant more recovery time in between games. This resulted in the reduction of
the risk of injuries, with Leicester suffering the lowest number of injuries throughout the
season.2 This also meant that Leicester were able to maintain a remarkable consistency in
their team selection, having used the joint lowest number of players throughout the
season, ensuring that the team chemistry remained intact.3
However, even with all these factors in their favor, there was still a number of things
going against them. Firstly, Leicester was competing against teams with significantly
larger revenues. Secondly, Claudio Ranieri had to operate on a tight transfer budget. In
addition, Leicester has a significantly smaller stadium in comparison to its rivals which
limited its ability to generate revenue. All these factors meant that the club management
had to be smart about allocating its resources. And that’s exactly what they did. Some
intelligent player scouting and addition of talented staff with a strong focus on sports
analytics played its part.
In the following report, I have analyzed data about the most consistent soccer clubs in the
top 5 European leagues and provided an overview of their business operations. I have also
attempted to provide a framework for future strategies to optimize allocation of spending
in order to maximize on-field success.

Revenue – All About The Money?
Perhaps the single most important goal for a soccer club outside of success on the field is
success off it. Now, traditional businesses define success according to how much profit
they generate. However, the primary goal of the business of soccer is not to make profits,
which is great because most of them don’t! So how do we define success off the field? The
answer is revenue maximization.
Like any other business, soccer clubs need money to keep themselves running.
Optimizing revenue streams is one the most important goals for any soccer club if it
wants to be successful on the field. But to optimize the revenue streams, first we need to
understand how soccer clubs make money. The revenue model of any soccer club can be
typically classified into three main segments: Matchday Revenue, Broadcasting Revenue
and Commercial Revenue.4
Fig. 2: Top ten European clubs by revenue (€m) - Deloitte Football Money League5
As you can see, commercial revenue is the biggest contributor to overall revenue for the
top clubs across Europe. However, some clubs are better at exploiting their commercial
opportunities than others. For example, Arsenal sits at the top of the pile when it comes
to matchday revenue, which is expected because they charge some of the highest ticket
prices in Europe.6
However, when it comes to commercial revenue, Arsenal is lagging behind their other
rivals by quite a margin. This indicates that there is certainly room to improve there.

Transfers – Personnel Matters
After soccer games, the thing that gets fans most excited about their clubs is their transfer
activities. Every summer, clubs across Europe clamor to find the best players in the world
and sign them up on long term contracts. In recent times the transfer season has become
an entertainment spectacle in itself with clubs fighting over the best prospects and
looking for bargains. With no soccer action over most of the summer (save for an
international cup tournament every other year), fans need something to satisfy their
soccer appetite. That something is soccer transfers.
Every year soccer clubs spend massive amounts in transfer fees across Europe. Last
summer, the top 5 European leagues spent a whopping €2.93 billion in transfer fees.
Fig. 3: Total transfer spend of top 5 European Leagues7

Looking at the net spend on transfers over 5 years and average points gained over that
same period, we can see that there isn’t a very strong correlation:
Fig. 4: 5 year net spend (€M) vs. average points in the same period.
Only 4 teams out of the 12 who had a net spend of €100M+ Euros over the 5 years had
average points of 85+ which is considered to be the threshold for winning the title in
many of the European leagues.8 One of them, Paris St-Germain spent a whopping €492M
in that period, which is a big price to pay for a winning a tournament that pays a paltry
€44.6M in prize money.
However, winning isn’t always about the return on investment. It’s about creating an
image of success that attracts more fans (paying customers) as well as the best players in
the world. It’s about developing a globally recognizable brand and in that regard, PSG is
doing a really solid job.
Another reason transfers are important is because they help boost revenues. Commercial
revenues usually skyrocket immediately after a club signs a star player as fans throng to
the club shops to purchase merchandise. Ticket sales also see a boost as fans are eager to
see their shiny new player in action. When Real Madrid paid a then world record fee of
€94M for Cristiano Ronaldo in 2009, they were almost immediately able to recoup their
investment from shirt sales with his name on it.9
However, year on year we see that clubs end up buying expensive players who end up
being complete flops.10 This has turned soccer transfers into an expensive gambling
business and has resulted in a transfer market that is extremely inefficient.

As Liverpool legend Jamie Carragher says in his excellent autobiography ‘Carra’, “As I
know to my cost at Anfield, having money is no guarantee of success. The skill is spending it
on the right players.”
So how do clubs optimally use the money that is available to them apart from signing new
players? One way to do it is to make smart buys. As Simon Kuper and Stefan Szymanzki
opine in their book ‘Soccernomics’ – “Any inefficient market is an opportunity for
somebody. If most clubs are wasting most of their transfer money, then a club that spends
wisely is going to outperform.” Brian Clough did it in his time as the manager of
Nottingham Forest, Arsène Wenger did it in his first decade as Arsenal manager and even
Olympic Lyon were known to pick up unknown players and turn them into star
performers. Leicester City is probably the most well-known out of the recent set of clubs
that have taken to unearthing hidden gems from lesser known leagues. Signings such as
Jamie Vardy, Riyad Mahrez and N’Golo Kante, whose combined transfer fee was less than
€10M, were instrumental in them winning the league last season. Southampton is
another example of a club that has been punching above its weight in recent times thanks
to smart buys in the transfer market.

Wages – An Offer You Can’t Refuse
An alternative to signing expensive stars for millions of euros is paying existing players
competitive wages. In contrast to transfers, which can be either hit or miss, with existing
players, you have the advantage of having seen them play for a certain duration. This
means that when you negotiate a contract with a star player that involves a substantial
raise in their salary, you have a fair idea of what you are paying for. Indeed, there is a
stronger correlation in the average number of points gained and the average weekly
wages per player in European soccer as shown below:
Fig. 5: Average annual salary (€M) vs average points.
Offering lucrative contracts can also be used as a tool to attract players by clubs that
traditionally may not be very attractive to players. One great example is the French club
Paris St-Germain (PSG). The club has been relatively successful in its brief history but was
lagging behind its European competitors until its takeover by the Qatar Sports
Investments group in 2011. Since then, the club has been on a spending spree, purchasing
the biggest names in Europe. However, PSG plays its soccer in the French Ligue 1 which is
the lowest ranked among the top 5 European leagues.11 Players want to win trophies but
they also want to play against the best players in the world and in the most competitive
leagues. So how did PSG manage to attract and retain their star players? They did that by
offering sky high wages.

The table below shows the average wage per player paid by the top 10 European clubs last
year. PSG’s wages were even higher than the traditional heavy-weights Real Madrid and
Barcelona.
Fig. 6: Average annual salary per player (€M)
However, not every club has the backing of an extremely rich investor and can afford to
pay crazy amounts of money to its players. That’s where good investment strategies that
balance smart transfers with competitive wages come into play. In general, it is better to
raise the pay of your leading players than to risk losing them and having to go out and
purchase replacements.

Infrastructure – Home Advantage
As mentioned earlier in the report, one of the three main sources of revenue for a soccer
club is matchday revenue. This includes revenue from ticket sales, food and hospitality.
This is generally money earned from fans of the soccer club who attend the matches on a
regular basis.
Having a large stadium is the first step in increasing matchday revenue. The figure below
shows the 5 year average revenue against the stadium capacity for the top European
clubs. We can see that almost all the clubs that recorded an average revenue of greater
than €100M over the past five years have a stadium capacity larger than 35,000. The only
exception is Southampton, which has a great youth academy and has an excellent record
at generating additional revenue from selling their best players at huge transfer fees.
Fig. 7: 5 year average revenue (€M) vs. stadium capacity
Of course, only having a large stadium is not enough. The facilities also need to be up-to-
date. This enables the clubs to charge a premium for good seats. Arsenal FC, who moved
to their brand new 60,000 capacity Emirates Stadium in 2006, charges some of the
highest ticket prices in Europe and still manages to sell out on a regular basis.12
This phenomenon is highlighted very clearly in France, who hosted the recently
concluded Euro 2016 international soccer tournament. A number of Ligue 1 stadiums
underwent renovations and new ones were constructed in order to host the matches in

this tournament. As a result, the league has shown a steady increase in attendances over
the past three years as shown below:
Fig. 8: Average attendance figures across the top 5 leagues in Europe
However, they still lag substantially behind La Liga, Bundesliga and the Premier League
which indicates that there is room for improvement.
The importance of world class facilities is highlighted by the low attendances in Serie A.
The top clubs in Serie A play in some of the largest stadiums in Europe. Average stadium
capacity for the top clubs in second only to La Liga.
Fig. 9: Average stadium capacity by league

However most of these stadiums are old and dilapidated.13 Hence fans decide to stay
away. Recently, there have been some signs of revival, with Juventus building their own
stadium and clubs like Roma and Milan unveiling plans for new stadiums in the near
future, Serie A seems to be on the right track.14
The more the number of games a team plays at home, the more matchday revenue it
generates. Typically, clubs only play a fixed number of games at home in the league.
However, clubs can increase the number of home games they play in a season by
progressing further in cup competitions and hoping for a home draw. For clubs playing in
the Champions League, progressing to the knockout phases guarantees at least one
additional home game because of the two-legged nature of the tournament. The further
they progress, more home games get added. More revenue means a bigger budget for
transfers and wages. Hence success on the field is tied to success off it.

The Future – Competing On Analytics
The future of soccer, as with any sport lies in efficient use of analytics. European soccer is
going through somewhat of a ‘Moneyball’ revolution. Teams are increasingly using
advanced analytics for even marginal gains. Data capture companies such as Opta and
Prozone are making a fortune collecting data and selling their services to the clubs. The
clubs themselves are investing heavily in analytics. Arsenal acquired the sports analytics
company StatDNA in 2012 which helps the club in scouting and talent identification,
game preparation, post-match analysis and gaining tactical insights.15 The City Football
Group which owns Manchester City, New York City, Melbourne City and Yokohama
Marinos has signed a multi-year partnership with German software giant SAP to assist
them with their analytical needs.16 Leicester City, winners of the Premier League last
season, has an entire team of analysts dedicated to Sports Science, Performance Analysis
and Recruitment.
As Billy Beane, general manager of the Oakland A's and the star of ‘Moneyball’, said: "The
idea that I should trust my eyes more than the stats, I don't buy that because I've seen
magicians pull rabbits out of hats and I know that the rabbit's not in there." Data however,
are not meant to replace intuition. There is a reason soccer managers at the top clubs are
some of the highest paid employees. Their experience is something that can’t be
discounted. Analytics should be seen as a tool; something that can be used in conjunction
with intuition in order to make solid footballing decision.
This brings me to the original problem statement – how can we use analytics in order to
optimize the way all these elements work together in order to maximize on-field success?
There are a number of ways in which to approach this problem. I decided to look at it
from a modeling perspective, using correlations and linear regression in order to build a
model that best describes on-field success using off the field performance metrics.
The Data:
The data for this analysis were collected from a number of different sources and collated
together since it is not readily available in a centralized system on the internet. I decided
to focus on the top 5 European soccer leagues for this analysis (England, Spain, Germany,
France and Italy). Since the objective was to identify the successful clubs and observe
what they are doing right, I decided to focus only on the top 10 clubs in each league. The
top 10 clubs were identified on the basis of the average points gained over the past 5 years
in their respective leagues. Once these clubs were identified, I collected a number of data
points on each club such as their UEFA coefficient (a system used by the European soccer
governing body to rank clubs), current valuation (€M), 5 year average revenue (€M), 5
year net spend on transfers (€M), Average salary per player per year (€M), 5 year average
attendance at home games, stadium capacity and social media following. These metrics

were essential in understanding how the club is performing off the field. For example, the
valuation and revenue are indicative of the overall financial health of the club, the net
spend indicates how well or poorly the club has performed in the transfer market, the
salary indicates how well the club is paying their players and the ROI they are getting in
terms of on-field performance and the attendances and social media following shows how
well the fans are engaged with the club.
The Model:
I started with loading the data in R and doing some exploratory data analysis (EDA). First
I plotted the correlation matrix:
Fig. 10: Correlation matrix for the variables
As you can see, the club value, revenue and average salary are highly correlated with
average points gained. A club’s ability to pay good wages is also dependent on the
revenue it generates as is visible from the high correlation with salary.

Having a good fan following is also crucial to generating revenue as indicated by the high
correlation between social media following, average attendances and revenue.
Next, I checked for linearity between the dependent and independent variables by
plotting them using scatter plots. This is to ensure that a linear model is the best fit for
this data:
Fig. 11: Plots of Average Points vs Net Spend, Average Salary and Average Attendance

The next step was to check that the dependent variable was normally distributed. This
was done by plotting a histogram of the dependent variable. As you can see, the data are
fairly normally distributed:
Fig. 12: Histogram of average points
Next, I split the data into two subsets – a training set and a testing set. I used stepwise
model selection in both directions to find the best model based on AIC. This suggested a
model that retained the UEFA coefficient, revenue and social media following as the
independent variables and left out the others. However, I was more interested in
understanding the impact of Net Spend, Salary and Attendance on the performance since
these are factors that the clubs have much more control over. Hence I selected a final
model that included Average points as the dependent variable and Net Spend, Average
Salary and Average Attendance as the independent variables. The model summary is
given below:

Note that as per our earlier hypothesis, the salary plays a significant part in explaining the
on field performance. Hence we can conclude that if there’s one thing that the clubs have
to prioritize in order to improve on field performance, it would be to optimize the wage
bill.
After fitting the model, I used the testing set to test the validity of the model and got a
good fit. The MSE and MAE are in reasonable range:
Observing the plots, the residuals vs fitted do not seem to show any pattern and the Q-Q
plot suggests that they are normally distributed:
Fig. 13: Plots from the regression model
MSE MAE
Training Set 51.8 5.2
Test Set 66.4 6.8

Conclusion - Model Interpretation
At the beginning of the report, we analyzed a number of off-the-field parameters that
affect the performance on-field. We looked at how revenue, transfer spending, salary and
infrastructure play a part in explaining a soccer club’s on-field success. We also
hypothesized, based on our preliminary analysis, that salary plays an important part in
explaining performance, since it’s almost always better to retain your existing players
than going out and purchasing replacements. After analyzing the output from the model,
it is clear that our hypothesis was accurate. With a p-value of 0.00341, the coefficient for
average salary is significant at α = 0.01. This means that the average salary is a very good
predictor of on-field success.
In conclusion, if a soccer club is interested in increasing its likelihood of success and has
to decide between recruiting new players, increasing salary or improving infrastructure,
according to the model, the decision makers should prioritize improving salaries as that
would provide the biggest uplift in performance.

Closing Thoughts – The Final Whistle
It is clear to see that data and analytics, if used correctly can be a great tool for soccer
club management. Even with a simple correlation and linear regression, we were able to
uncover some good insights from the data we had at our disposal. This is just one of the
applications of analytics in the field of sports. A number of clubs have started investing
heavily in the field of analytics to eke out even the most marginal gains in performance.
Everything from player scouting, to strength and conditioning to injury prevention and
even nutrition is being touched by analytics. The day doesn’t seem too far away when a
soccer club wins a championship and it’s the analysts who take the plaudits instead of the
star players!

Appendix
References:
1. http://fivethirtyeight.com/features/leicester-citys-stunning-rise-in-two-charts/
2. http://www.mirror.co.uk/sport/row-zed/injury-figures-every-premier-league-
7827967
3. http://www.skysports.com/soccer/news/15115/10186258/manchester-united-have-
used-33-players-in-the-premier-league
4. http://www.businessofsoccer.com/2014/02/18/how-do-soccer-clubs-make-money/
5. http://www2.deloitte.com/rs/en/pages/consumer-business/articles/deloitte-
soccer-money-league1.html#
6. http://www.bbc.com/sport/soccer/34531731
7. https://www.onesoccer.com/magazine/summer-transfer-window-2015-analysis/
8. http://www.soccer.co.uk/chelsea/what-will-it-take-to-win-the-
premiership/4617872/#gfMpdZkIBX8lMcH7.97
9. http://metro.co.uk/2010/04/15/cristiano-ronaldo-shirt-sales-have-already-paid-off-
80m-fee-to-manchester-united-real-madrid-claim-242129/
10. http://www.dailymail.co.uk/sport/soccer/article-3225400/Manchester-United-
wasted-money-expensive-flops-Premier-League-joins-throwing-cash-drain.html
11. http://www.uefa.com/memberassociations/uefarankings/country/
12. http://www.mirror.co.uk/sport/soccer/news/price-soccer-study-arsenal-again-
6634479
13. http://www.espnfc.us/italian-serie-a/story/2255044/serie-a-attendance-figures-
continue-to-decline-report-says
14. http://soccertripper.com/7-stadiums-which-could-rejuvenate-serie-a/
15. https://www.theguardian.com/soccer/2014/oct/17/arsenal-place-trust-arsene-
wenger-army-statdna-data-analysts
16. http://www.bbc.com/news/business-33277924
Data:
https://drive.google.com/open?id=1bb_AgsURV8k2Ryof4Pc0wFNRV0cUD4CElzvx
S_iBjZI
R Code:
https://drive.google.com/open?id=1mj__32hj2vjU4gdGxr5obVQJF8IN9zYglaWmi7
UYP3Q

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