Finance and football: An ISL and Chennaiyin FC view

At a time when we have all been away from the normal life and for sports fans who have been starved of any sporting events happening across the world, it is a right time to learn some behind the scenes of our beloved sports teams, have to narrow it to football for now, there is a little bit of cricketing stuff too, but for now let's call it the breakdown of Indian football clubs, the funding, the revenue, the expenditure and achieving sustainability.

As I say Indian football clubs, we are mainly going to see it revolve around the Indian Super League - the young, fancy and soon to be the Tier 1 of Indian football system. Because not only very few care about the soon-to-be Tier 2 I-League clubs anymore but the ISL is on a whole different level to the I-League, it demands higher things, the best example would be the case of Bengaluru FC, the club had expenses shot up from Rs. 15 crore while in I-League to around Rs. 50 crore in the ISL, that's the differential ISL demands and generates.

FUNDING

Let's get straight to the point - all ISL clubs have much higher expenditure compared to the revenue each generates, and therefore runs in losses and has been the same loss making scenario for last 6 years. Then how does the show goes on? Pretty simple, owners keep putting more and more money in the clubs or in some cases few have got fed up and sold off to different people and the new people invest further. The logic behind owners burning more money every year is hoping eventually they expect their clubs to turn profitable like the IPL franchises of today.

Most of these funding come in the form of loans from owners which sits as debt for the club and as on date, most ISL clubs have a debt in the range of Rs. 100 to 150 crore.

In the case of purely corporate owned clubs, which in the case of ISL are Bengaluru FC owned by JSW Steel and Jamshedpur FC owned by Tata Steel, the clubs do report a break-even (neither profit nor loss) or a small profit, these clubs do have a similar revenue and expenditure compared to others too, but the deficit/loss in provided by the companies as sponsorship money every year instead of what the other clubs give it as a loan, by doing this the corporates ensure their parent company rotates their actual profit money within their group and also pay less taxes to the government, but technically all clubs are at an average loss of Rs. 25 crore irrespective of whoever owns it.

REVENUE

The general streams of revenue in football or in most sports across the world are classified into 3 categories: Broadcasting revenue (revenue generated from sale of broadcasting rights for television and other streaming platforms), commercial revenue (sponsorship obtained from corporate and others) and match day revenue (sale of tickets and merchandises). In addition to these main three streams, there is also the prize money which is an additional boost to the clubs who managed to secure it.

In India, the classification is similar too, but the broadcasting revenue is renamed as Central Pool revenue which includes the broadcasting revenue and the revenue from other sponsors obtained by the league especially title sponsors who pay a huge amount such as Vivo in IPL and Hero MotoCorp in ISL. Since Star India co-owns the ISL along with Reliance Industries, there isn't a concept of broadcasting revenue in the league which is a huge disadvantage for all the clubs.

Over the period of the six years since the league formation, the Central Pool revenue is growing at a good rate, clubs are also working hard to increase their commercial revenue amid the league's struggles but the ticketing revenue has come down drastically compared to Season 1 and 2 when the league had the attention of the country as seen below from Chennaiyin FC's numbers.

EXPENSES

The highest expenditure for any football club on any part of the world is its players wages. In ISL too, the same forms around at least 30% for most clubs. The ISL clubs also pay a franchisee fee of Rs. 12 crore every season and will continue to pay the same as long as the franchisee concept exists.

One of the major expenditure that isn't much seen in rest of the world is the stadium rent & implementation fees which amounts to around Rs. 5 crore for most of the clubs since none of the clubs own their stadium and have to pay rent to the local federations and government bodies that actually own the stadium and over and above, the implementation of the stadium which includes preparing the grass for the season, repairing of seats, dressing room etc as every year the clubs usually inherit a damaged or a poorly maintained stadium.

For the ISL clubs, players & coaching staff wages, franchisee fees and stadium implementation forms around 70% of their total expenses. Other expenses include hospitality & players' accommodation, travelling expenses, grassroots, scouting etc.

CHENNAIYIN FC VS REST OF ISL

Although all ISL clubs have a similar revenue and expenditure, we can't compare Chennayin FC's numbers in detail with all clubs, Bengaluru FC and Jamshedpur FC are corporate owned and show a break-even or a small profit, Odisha, Hyderabad FC and Mumbai City FC have both undergone restructuring, ATK is being merged with Mohun Bagan and that leaves us with FC Goa, Kerala Blasters and North East United.

On a detailed analysis of Chennaiyin FC, FC Goa and Kerala Blasters, as expected, the revenue and expenses are very similar except in one or two things. In terms of revenue, FC Goa and Kerala Blasters have a much higher ticketing revenue compared to Chennayin FC. Kerala has shown a considerable dip in the ticketing revenue yet it is better than CFC and FC Goa constant full house stadiums coupled with increasing ticket prices means there is steady growth in the ticketing revenue which is incredible. FC Goa, Kerala Blasters, Bengaluru FC has better ticketing revenue numbers followed by Chennayin FC and then the rest of the league.

And in terms of expenses, players' wages are higher for Chennaiyin FC compared with the Kerala and Goa based clubs and not much difference for other expenses as given in detail below for the last 3 years for the 3 clubs:

COMPARISON WITH EPL AND IPL

In terms of finances, the top-tier European leagues are far ahead compared to the ISL just like how it is on the pitch. Ever since Sky Sports began broadcasting football games on TV in 1991, the whole landscape of football and several sports changed, as the years went by, the broadcasting revenue poured for the clubs as viewers and supporters came from around the globe. Clubs in the English Premier League (EPL) generate millions from it and in most cases it amounts to 60% of their total revenue. The absence of the broadcasting revenue for the ISL is a huge setback and the terms with Star have to be changed by the Football Sports Development Ltd (FSDL) which organises the ISL for the betterment of the league and the sustainability of the clubs by selling the TV rights.

We can't speak about any sports league without bringing in the Indian Premier League (IPL), the biggest in the country and in its sport in terms of everything. All the fans and especially the owners of the ISL clubs will always be hoping that the league reaches levels the IPL has attained and continues to grow. IPL clubs successfully managed to reach break-even at the end of 6 years, which is exactly where the ISL is now but has failed to reach break-even and also little far from it by reaping in average losses of Rs. 25 crore last year.

Each IPL club had a revenue of Rs. 400 crore last year and made a profit of around Rs. 100 crore. Irrespective of where they finish in the table, they would make this amount of money year after year and it only keeps growing. To put in perspective, if the ISL clubs manage to make a Rs. 100 crore profit like an an IPL club, which roughly translates to 10-15 million Euros, this would even enable them to sign a second string player from the English Premier League or the La Liga. The ISL organisers FSDL and the clubs had to pull their socks and up their levels to reach the levels of IPL or else the show stops sooner or later.

SELF-SUSTAINABILITY

If any sports club is unable to generate enough revenue to match its expenses and continues to reap losses year after year without any turnaround, the club will eventually face bankruptcy and enter administration or worse, liquidation.

The importance of achieving self-sustainability that is reaching break-even is very crucial and it most probably the most important task ahead for all the clubs management and owners. There are several ways to reach that safe status but definitely have to occur with consistent and well planned efforts by all.

Increase in stadium attendances can be a huge boost to Chennaiyin FC and also other clubs, as said earlier the ticketing revenue needs to be back like the first 2 seasons when it contributed to 20-30% of the total revenue. Supporters need to buy the season ticket and every year that number has to increase. More fans in the stadium also increase sponsors attention and that in turn will increase the commercial revenue too which will eventually increase the broadcasting revenue. The ticketing revenue has the capability to act as an ignition for the good chain of events to occur.

The clubs will also need to ensure they cut down on the expenditure in the next 3 to 4 years to ensure achieving self-sustainability by the end of 10 years of ISL. The league organisers also have a major task to play by finding a way to generate broadcasting revenue, either by change of terms with Star India or opting for a new television player.

The integration/merger of ISL and I-League, City Football Group (CFG) acquiring a majority stake in Mumbai City FC, Asian Football Federation (AFC) recognising ISL as the top tier and granting continental spots, merger of ATK with Mohun Bagan are all positive developments for football in the country but there is plenty of work to be done in the coming years for the clubs to achieve self-sustainability.

And from a Chennai perspective, Chennaiyin FC needs to aspire to reach Chennai Super Kings (CSK) levels, an IIM Kozhikode research paper says 96% of the Chennaites support CSK, even reaching half of CSK’s levels would keep Chennaiyin FC up and running forever without any trouble, financially or anything else. Because once a club gets more fans, the ticketing revenue increases, as more and more tune in, broadcast revenue increases and this together increases the commercial revenue too from sponsors. So everything lies in the hands of you and me, rest of the city for coming to the stadium to watch the games.

Thanks for taking your time to read the article, the above article was elaborately written to support the podcast I spoke on. You can listen to the podcast through any of the below links by navigating to Episode 10:

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