FC Bayern Munich – achieving unparalleled sporting and financial success in the world of soccer
Bayern Munich has managed to become a dominating force in world soccer by carefully aligning its operating and business model
On June 1st 2013, Bayern Munich (FCB) came to dominate world soccer. After defeating Stuttgart (3-2) in a dramatic match, Bayern took home the German cup and thereby sealed its first treble win – a historic achievement attained by only seven clubs before.
Bayern, or FC Bayern München e.V. as its full name reads, is a soccer powerhouse located in the south of Germany. It is consistently ranked among the top three soccer clubs – on the pitch as well as financially.
Bayern’s sporting accomplishments become even more impressive when paired with its unparalleled economic success. It is the only top club that has managed to be profitable for over 20 years.
Stellar financial performance
Year over year, Bayern reports new record financial results, as in 2015 when FCB managed to gross € 524MM (doubling revenue from 2005) and earn € 111MM (EBITDA). This puts Bayern third in Deloitte’s global soccer money report.
However, these numbers appear even more extraordinary, when one realises that Bayern has neither crushing amounts of debt on its balance sheet nor an ultrahigh-net-worth individual financier as most of its international competitors do. While Bayern, upholding a $2.3 BN enterprise value, is virtually debt-free, Manchester United, the second most valuable club in the world, derives 20% of its valuation from debt – a whopping $569 MM in 2014. Meanwhile, other European top clubs such as FC Chelsea or Manchester City are said to be profiting from multibillion dollar cash outlays of their private owners – individuals from Russia respectively the Emirates.
Naturally, the question arises as to how Bayern has managed to remain internationally competitive at the highest level, while simultaneously be (sustainably) profitable.
Bayern has intimately aligned its operating and business model to serve the dual purpose of improving sporting and financial performance. Four key strategies are central to this alignment: i) own your home turf, ii) diversify revenue streams, iii) scout and develop talent internally and iv) put fans first.
Own your home turf
Exerting domestic dominance has been central to Bayern since its rise to the Bundesliga. Bayern has won 24 league titles – more than the next six clubs combined. It does so by prioritising winning the Bundesliga championship as the most important goal of the season. Moreover, in years when domestic rivals seem to catch up, Bayern deviates from its ‘scout and build talent’ strategy and poaches star players at a premium from these sides. This ensures Bayern’s long term dominance in the Bundesliga. As a result, Bayern’s stable performance in Germany provides a solid basis even when things turn out not so well internationally.
Diversify revenue streams and ramp up commercial activites
While on average top clubs derive 42% of their revenue from broadcasting fees, Bayern has sought to reduce its dependence on this performance-volatile income stream – broadcasting revenues are tied to clubs’ performance. Furthermore, Bayern has focused on commercial revenue growth by driving sponsorship, advertising and merchandise sales. It topped list for highest commercial revenue among soccer clubs with €201.6 MM in 2012.
Selected commercial sponsorship deals:
- Adidas sponsorship (€25 MM pa)
- Deutsche Telekom sponsorship (€30 MM pa)
Scout and develop talent internally
Despite having a sizable, financial war chest, FCB is an extremely disciplined buyer on the international transfer market. Bayern’s most expensive transfer, Javi Martinez (€39.9 MM), barely makes it to the list of the 50 most expensive transfers. Astronomical transfer fees as paid by Real Madrid (Bale €100 MM, C. Ronaldo € 94MM) will not be part of the FCB operating model any time soon.
Instead, Bayern invests heavily in scouting young football talent and developing it over years in the Bayern youth academy. Bayern deploys a worldwide network of scouts, who often find raw talent as young as the age of 14 and bring them to the boarding facilities at Ingolstädter Straße, where the players train and receive professional coaching and schooling. This approach yields spectacular results. Five players among Bayern’s starting eleven in 2013 graduated from the youth programme. Earlier this year, Bayern announced to invest €70 MM in new facilities for the youth academy – in the hopes to surpass Barcelona’s La Masia academy as premiere youth programme in soccer.
Put fans first
Bayern’s management identified fans to be one of the club’s most valuable assets. It is the second most popular sports club globally, and continues to grow its 223,985 members base. Bayern home matches in the Allianz arena (70,000 capacity) are always sold out. Compared to other top European leagues, the Bundesliga has very low match day ticket prices. Bayern even uses VIP box ticket sales to cross-subsidize its regular fan tickets. Increased fan loyalty enables Bayern to reap the financial benefits elsewhere (eg sponsorship, merchandise sales).
In a nutshell, Bayern has chosen a unique and sustainable path to success. Its alignment of operating and business model could (or better put, should) serve other clubs as a role model.
Bayern’s business model is indeed an amazing example for other soccer clubs to follow. Another, more nuanced aspect of their success is that German players prefer to buy their trade in their home country. This fact combined with Bayern’s status as the best German club allows them to attract the best talent from Germany as well as abroad.
Yes, it is a virtuous cycle. By being the best club in Germany, FCB attracts the best German players and further strengthens its supremacy in Germany.
Bayern’s operating model has definitely led to its success financially. Building on your point of scouting and developing talents internally, this can help a football club save significant costs. In the English Premier League, according to the Guardian, only approximately 25% of the clubs are profitable while the rest of the clubs are making losses. Revenue streams for English clubs have been growing constantly, however one major problem is rising players’ wages and transfer fees, which has significantly hampered football clubs’ profitability in recent years. By building up players from an early age, this can help a football club reduce costs on transfers but at the same time help build the players’ loyalty to the club from an early age.
Yes, completely agree. I think FC Barcelona is very good example of great talent development. In 2012, a spectacular five La Masia graduates were nominated for the Ballon d’Or (Messi won). I also think by developing talents internally the club is be able instill a certain philosophy of playing football in the players. In Barcelona’s case it is the Tiqui-Taca way of playing football.
One ripe area that Bayern is trying to leverage to maintain its dominance is analytics. Sports analytics have taken most American sports by storm. Starting from the Oakland Athletics kicking off the “Moneyball” era in baseball, most team in the MLB, NBA, and to a lesser extent the NFL, now invest in analytics efforts to gain a competitive advantage. The soccer world has been slower to join the bandwagon, and for a variety of reasons. One reason is the ubiquity of data (or lack thereof) in soccer. Since baseball consists of so many events on a yearly basis (teams play 162 games, with players making multiple plate appearances each game), that provides enough evidence to conduct all types of data analytics. On the other hand, “events” in soccer are less ubiquitous, and more interdependent (as opposed to baseball, where performances of players are much more independent from other players). This makes soccer more difficult to analyze. However, Bayern, and the coaches they choose (currently Guardiola) have been among the first adopters in soccer, and have an opportunity to be leaders in this field.