Most professional European football clubs aim for sporting success for two reasons: first, sporting success is what matters to players, fans, and employees; and second, it is the basis of business success.
A team’s quality drives sporting success. A strong predictor of a team’s success at the end of the season—and therefore its quality—is the market value of the team at the start (Exhibit 1).1 In the top five European leagues, for example, the club with the highest team value at the start of the season won its league’s title in three of four seasons over the past five years.
Previous research shows that most increases in team value stem not from net investment into new players but from what we call “team value management” across three areas: development of first-team players, integration of youth players, and player-trading excellence.2 The research also highlights the key characteristics of clubs that have created capabilities in at least one of the three areas, allowing them to outperform even clubs with higher budgets.
These areas of team value management have increased in importance in recent years for two reasons. First, club revenues fell during the pandemic, eroding the overall financial situation of many clubs and limiting the budgets that clubs could allocate to their first teams. Second, additional financial regulations have placed constraints on clubs spending beyond their means. Combined, these two factors have helped boost the competitive advantage of clubs that can turn limited budgets into higher-quality teams versus competitors that are less cost-efficient. This is why clubs with sound sporting models, such as Real Sociedad in Spain and Atalanta BC in Italy, have climbed the ranks despite having lower first-team budgets compared with less successful competitors.3
The ‘value frontier’ benchmark for value-oriented budget allocation
The value frontier defines the highest-quality team that can be run on a fixed budget—and can help club management and owners understand whether their current budget is put to good use. We analyzed more than 100 professional clubs across Europe.4 Our work covers four seasons, from the beginning of the 2017–18 season to the end of the 2020–21 season. The study seeks to address three questions:
- What is the budget needed to run first teams efficiently?
- How big is the competitive advantage that value-oriented budget management can create?
- Why do some budgets translate into highquality teams while others don’t?
Value-oriented budget allocation can create an advantage worth €200 million per year
Total first-team budgets are the sum of wages, net transfer investment, agent fees, and the changes in current players’ market value.5 How do these budgets relate to the quality of a team as approximated by a team’s market value? We looked at the relationship between budget and team value among the top (largest), midsize, and smaller clubs in our sample.6
As one might expect, clubs with higher first-team budgets have, on average, better first teams; this relationship is demonstrated by the positive correlation we see in Exhibit 2. But comparing team quality and team budgets reveals two additional findings:
- The value frontier helps identify the budgets required to run teams in a value-oriented way. For example, in the 2020–21 season, a cost-efficient club could run a team worth €600 million (similar to the market values of clubs such as Borussia Dortmund, Inter Milan, and Tottenham Hotspur) with an annual financial resource need (taking the balance sheet effect into account) of about €100 million.
- The analysis enables club leaders to estimate the potential gains of efficient team value management. The budget gap between first teams of similar quality at highly efficient clubs and at clubs that are lagging behind is huge: budgets differ by up to €200 million at top and midsize clubs and by up to €100 million at smaller clubs.
An important takeaway is that value-oriented first-team management allows clubs to systematically outperform rivals with bigger overall budgets. Indeed, in our sample of more than 100 clubs, some of the top 20 operate with lower total first-team budgets than a substantial share of those ranking in the mid-30s.
A look at the clubs close to the value frontier shows that budget efficiency is not tied to a specific league. The best-performing clubs (in terms of how their budgets translate into team value) compete in all the major leagues as well as in the smaller leagues (Exhibit 3). Budget efficiency is thus highly likely to be related to the quality of decision making within each club.
Differences in first-team budgets reflect how teams are built
More than 80 percent of the budget gap between more and less efficient clubs can be explained by how clubs assemble their first teams: clubs that can identify and develop players in-house have less need to upgrade team quality via net transfer investments (Exhibit 4). This need for external quality depends primarily on the ability of clubs to successfully integrate players from the academy, recruit promising young talent at an early stage, and develop players’ potential.
Importantly, the wage difference between players of similar quality is not the primary reason for budget differences between clubs; it’s the consequence of different approaches to team composition. For example, clubs that systematically and successfully integrate young talent from their academies pay lower wages than clubs that rely on experienced players bought in externally.
Getting as many decisions right as possible: A framework for competitive advantage
While luck remains a large factor and operational excellence in day-to-day work is vital, translating budgets into quality teams also depends greatly on about 50 sport management decisions every year. These decisions relate to identifying, developing, signing, retaining, and releasing talent—both players and technical staff. No club gets all 50 decisions right, but efforts to improve the decision-making quality within the sporting department can help clubs make fewer mistakes.
There are many ways to improve decision quality across the three team value management areas: development of first-team players, integration of youth players, and player-trading excellence (Exhibit 5). In each of these areas, competitive advantage can originate from positioning, people, processes and tools, or structure.
For example, better positioning could improve a club’s image, helping attract players. Competitive advantages can also be related to people with specific skills (such as the quality of coaches in the youth academy), established processes and tools (for instance, using a proprietary scouting database), or structural advantages (for example, a multiclub model that benefits from the synergies of multiclub cooperation). Of these, structural advantages make the most consistent impact on differentiating a club from others.
Most multiclub models are now moving from a phase of expanding portfolios toward a phase of optimizing clubs within the portfolio. Clearly defining and connecting the sporting models across the portfolio will be critical; in turn, doing so will put additional pressure on single clubs to maintain or strengthen their competitive positioning.
Differentiating competitive advantage: Examples from across Europe
An examination of European football clubs during the 2017–18 to 2020–21 seasons reveals a variety of team composition strategies across the three areas of team value management.
- Development of first-team players. RB Leipzig’s upgrade into one of the three most competitive Bundesliga clubs has more to do with how the club invests money than with the amount of money it invests. A high percentage of young, world-class talent in RB’s squad indicates that the majority of its first team’s value gains result from player development rather than from net transfer investment. Thereby, being part of a multiclub model also yields structural advantages in profiting from the player development on farm teams, talent pipeline management, and developing technical staff.
- Integration of youth players. Real Sociedad doubled its team value in five years and established itself in LaLiga’s top four. Strategic clarity and operational excellence in developing and integrating local youth players played a significant role in the club’s success; the club strives to source 60 percent of first-team members from the academy.
- Player-trading excellence. S.L. Benfica has remained among Europe’s top three clubs in creating player value, which translates into the largest transfer profits of all clubs over the past decade. This is enabled by a dense, countrywide scouting network; a focus on player development at the core of the club’s identity; and a trader mindset when acting in the transfer market.
- Cross-cutting. Liverpool FC offers an example of a club building a competitive advantage related to processes and tools across all three areas. By building capabilities in evaluating the performance and future potential of current and external players, Liverpool FC has been able to compete with teams with much larger budgets. This strategy is supported by a leading data science department and the development and rigorous use of analytical tools.
Regardless of the strategy pursued, generating value through successful team composition requires a planning horizon of at least three years. Patience and continuity—both on and off the pitch—are therefore essential building blocks for increased cost efficiency and business success.
As in many business sectors, immense pressure to demonstrate performance in the short term—in the next game or the current season—often leads to decisions that do not take longer-term effects into account. Clubs’ top management teams would be well advised to develop coherent strategies to address the cost–value equation and engage in longer-term planning. Success does not come overnight.
