As a Lyon-based company, we are seeing the local soccer club face significant financial difficulties. The DNCG, the financial watchdog for professional soccer that ensures the financial health of clubs, has been promised by Olympique Lyonnais €100 million in player sales by August 31, 2024. At a time when a historic club (Girondins de Bordeaux) has been relegated to National 2, we explain why what is happening to OL is so serious.
Preamble
- Since OL is a publicly traded company, all financial figures are available to the general public, and you can find them here.
- We will base our analysis on the financial figures for the fiscal year ending June 30, 2023.
- We will make projections for fiscal year 2024.
- We will update this article when the 2024 figures are released.
Sports clubs are not traditional businesses. Professional soccer clubs, even less so. It’s a difficult analysis to conduct, since the business model is quite unique—you don’t make money running a soccer club.
And that's very problematic because it runs counter to the very essence of what a company should be.
To answer one of the first questions soccer fans ask themselves:
"If OL has to sell players for 100 million, why do they keep buying players?"
The promise of 100 million euros applies to the 2023/2024 fiscal year, which ended on June 30. Player acquisition expenses are part of the 2024/2025 fiscal year, which will end on June 30, 2025. OL will therefore not have to account for these acquisitions until next year.
It seems like they're going "all-in" in the hope of winning the Champions League, a major source of revenue for the club.
Analysis of Olympique Lyonnais' Performance
Revenue
OL’s revenue ranges from 110 to 150 million euros. It should be noted that player transfers are not included in revenue. Revenue therefore consists solely of ticket sales, TV and marketing rights, sponsorships, merchandise sales, and events (such as corporate seminars).
Our analysis: There is a great deal of uncertainty surrounding OL’s revenue. The first is the uncertainty surrounding athletic performance, which will impact all components of revenue. Next are the headwinds. We know that revenue in 2024 will be significantly higher (approximately €260M compared to €143M in 2023) thanks to CVC[1] rights and revenue generated by the LDLC Arena.
Except that we now know TV rights revenue will be roughly cut by two-thirds. Even if OL wins the championship, they’ll receive less than they did when they finished7th in the last season. Furthermore, the sale of the LDLC Arena will have a significant impact on revenue, since €43 million came from events held there. That’s nearly €60 million in lost revenue—42% of 2023 revenue.
Net Income
People used to say you can’t make money running a soccer club. OL is a good example of that. Since 2019, OL has been posting losses.
Our analysis: Consecutive losses are problematic because they impact equity. In a company, equity is a very important factor in financial analysis. Significant equity reflects a company’s financial strength. This accounting metric is very important to investors and lending institutions. Over the past two years, despite its revenue, OL has lost the equivalent of one year’s revenue.
Debts
In corporate finance, it is commonly said that the debt ratio (also known as “gearing”) should be less than 1. With €100,000 in equity, a company should have less than €100,000 in financial debt. For OL, equity is negative: -€84M. This means that despite all the money invested by shareholders (€300M), OL loses so much money every year that its cumulative losses total €380M. The fact that equity stands at -€84 million explains why the DNCG is requiring €100 million in player sales by August 31. So, we have -€84 million in equity, against €297 million in debt… The ratio must be greater than 0 and less than 1; it currently stands at -3.5.
Our analysis: For the fiscal year just ended, the situation should improve thanks to the sale of the LDLC Arena and OL Féminin, as well as the financial contribution from CVC. It is a common strategy for a company in financial difficulty to sell its assets to shore up its finances. Except that in OL’s case, this is merely a temporary reprieve, as we now know that revenue will eventually drop significantly due to the loss of TV rights and income from the LDLC Arena. A Champions League round of 16 match brings in about €40M for a club. But the club must first qualify for the Champions League and perform well. This adds risk, as nothing is guaranteed.
Cash Flow
In financial statements, the cash balance reported is the amount of money in the accounts at a given point in time. So on June 30, 2023, OL had €3.4 million across all its accounts. That’s incredibly low. Every month, OL must pay approximately €10.6 million to cover the salaries of all club employees (not just the players). If payments are made on the first of the month, then Lyon was short €7.2 million to pay everyone.
Our analysis: This is one of the issues we find most concerning, and it’s surely what worries the DNCG as well. €100 million is enough to pay virtually all employees (and therefore the players, since they account for the bulk of the payroll) for a year. There’s no doubt that, in 2024, with the previously mentioned sales, the situation will improve… for now.
Our Final Analysis
As of this writing (August 27, 2024), Lyon has spent €134 million on new players, likely financed by the previously mentioned sales. According to the media, the club is in a situation where everyone is for sale. This seems like a risky strategy to secure a spot in the Champions League, a competition that brings in a lot of money for the club, especially if they perform well. However, the money generated by this competition will barely offset the loss of revenue from OL’s ancillary businesses.
If the club has to sell any players before the transfer window closes, it will undoubtedly weaken the team. If the team fails to qualify for the Champions League, it will likely have to sell players worth at least €150M next summer. The DNCG will likely ban the club from signing new players, so selling will be absolutely necessary. However, when a club is truly in dire straits, it isn’t in a position of strength during negotiations and ends up selling its players at a bargain price.
The DNCG may also deduct points, which will affect revenue (since this influences the final standings).
As we saw with Bordeaux, even a major club can be affected; that’s not what we want for OL, and surely a strategy involving a network of clubs could save OL, given that foreign regulatory bodies are less strict than their French counterparts. We’ll be following the situation closely, hoping for the best.
[1] The LFP sold a portion of the long-term TV rights (a 13% stake in the lifetime rights) in exchange for 1 billion up front (including 50M€ for OL for the 2024 fiscal year)