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Abu Dhabi, UAEWednesday 12 December 2018

Fifa in desperate need of World Cup revenue result

Corruption scandals have put off big name sponsors including Sony and Emirates

The federation’s long-standing president Sepp Blatter was ultimately forced to resign after 17 years in office. AFP PHOTO / Michael Buholzer
The federation’s long-standing president Sepp Blatter was ultimately forced to resign after 17 years in office. AFP PHOTO / Michael Buholzer

On July 14 the 2018 Fifa World Cup gets under way at the Luzhniki Stadium in Moscow, which has undergone a €350 million (Dh1.54 billion) reconstruction in preparation for the tournament. Russia and Saudi Arabia meet in the opening match.

Millions are expected to tune in to one of the most eagerly anticipated spectacles in sport. Most of these viewers will be oblivious to the turmoil which has engulfed the upper echelons of football in recent years. But for governing body Fifa, the most important results will not be recorded on the pitch, but on its balance sheet.

Overseeing the world’s most popular sport should, in theory, be a lucrative business for Fifa. But the federation, headquartered in Zurich, has been rocked to its core by a series of corruption scandals, which may significantly affect its revenues this year. This puts enormous pressure on Fifa to maximise the profitability of its flagship tournament, which will be a serious challenge in the current climate.

Fifa made an operating loss of US$391m in 2016, which is not untypical in a non-World Cup year. The organisation acknowledged as much in its most recent financial report, describing a “four-year World Cup cycle, in which three years of steady outgoings are typically offset by the revenue of the fourth”.

According to its most recent financial report, the revenue target for the current calendar year is US$3.99 billion, nearly eight times as much as was raised in either 2015 or 2016. The previous World Cup, held in Brazil in 2014, generated $4.8bn in revenue for Fifa.

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But the following year US prosecutors launched a wide-reaching federal investigation into corrupt practices, leading to the arrest of a series of football officials. The federation’s long-standing president Sepp Blatter was ultimately forced to resign after 17 years in office.

Legal proceedings are ongoing, but the damage to Fifa has been significant. Sponsors are deserting in droves and blue-chip companies like Sony, Emirates, Castrol and Continental Tyres have all decided to distance themselves from football’s beleaguered governing body.

Under normal circumstances, 2018 would be the most lucrative year in Fifa history given the World Cup in Russia, which kicks off on June 14. But the event may not be big enough to dissipate the dark cloud which hangs over the federation.

“[The corruption scandal] has, and will, continue to cost them quite a bit,” says Rob Wilson, principal lecturer at Sheffield Hallam University, who specialises in football finance.

“They have plenty of legal fees to pay, estimated at around $50m this year, and a number of very high profile sponsors have not renewed their contracts.”

Ahead of the 2014 World Cup in Brazil, sponsorship slots were completely sold out with six months to spare. The subsequent corruption scandal has seriously tarnished the appeal of the tournament, making the ongoing search for sponsors ahead of this year’s tournament a major concern.

“The last data I can find indicates that they only have 12 of 34 sponsorship slots lined up in advance of the World Cup. This sort of situation is almost unheard of, most sponsors are lined up years in advance of the competition,” says Mr Wilson.

Another blow to this year’s tournament came when traditional football powerhouses Italy and the United States both failed to qualify. While the US has never won the World Cup, the popularity of football as a sport has soared in recent years.

More than 18 million US households tuned in to see the national play Belgium in the last 16 of the 2014 tournament. US broadcaster Fox is paying more than $400m for US broadcast rights to the 2018 and 2022 World Cups.

In a rare interview with the Associated Press in November, Fifa’s chief commercial officer Philippe Le Floc’h admitted the failure of the US to qualify would adversely affect the organisation’s ability to meet sponsorship targets,

“Everybody is annoyed with the non-qualification of the US which was not expected, to be honest,” he said.

However Mr Le Floc’h expressed confidence that the sheer scale and prestige of the World Cup would ultimately trump all other concerns.

“It is complicated, especially in a market where [potential partners] see some crisis around [but] the bad time is behind us. In the end, we bring the biggest show on Earth,” he said.

Italy’s failure to qualify for the World Cup, meanwhile, is a blow not just to the tournament but to the country’s economy. The Azzurri’s shock non-appearance at the finals, its first in 60 years, may cost Italy up to €1bn (Dh4.4bn), according to Franco Carraro, the former head of the Italian National Olympic Committee, which oversees football in the country.

“It’s not only about missed advertising sales, television rights and merchandising related to the event,” Mr Carraro told Bloomberg in November.

“There is much more to it, including the missed sales for travel operators organising holiday packages to Russia, let alone the turnaround of betting companies and of bars and restaurants across the country during the matches,” he said.

International sports media agency MP & Silva is currently counting the cost of Azzurri’s failure to qualify. The agency purchased the Italian broadcast rights for the 2018 World Cup but waited until qualification was complete to put them up for tender. The rights were eventually sold to Mediaset for a reported €78m, about 50 per cent less than they would have been worth had Italy progressed.

Still, not everyone is upset about the absence of the US and Italy. The major beneficiary of the US’s failure to progress is Panama. The country has a population of just 4 million people, is ranked 92nd globally for Gross Development Product and will be playing in the World Cup for the first time in its history.

Yossimar Reina lives in the country’s capital and is part of the team behind Panama Gol, a website devoted to football. He says this potentially once-in-a-lifetime event has captured the imagination of the Panamanian public.

“There is a lot of excitement, it is something that has captivated not just the avid football fan, but the whole country. You see everybody is invested in it, everybody has their team jersey, everybody knows the names of the players, which was not always the case, and has begun to idolise them.”

Seeing small clubs or countries overachieve or pull off a major upset is part of the magic of football, particularly if it comes at the expense of a more established opponent. Mr Wilson thinks the presence of countries like Panama at the World Cup will help to compensate for the absence of more established footballing ­nations like the US or Italy,

“[The US and Italy failing to qualify] doesn’t have a huge influence as the qualified countries will bring their own interest,” he says.

“Clearly though, the US market is lucrative and the TV broadcasting rights fees would have been higher with US participation.”

Fifa has taken steps to ensure its fut­ure financial projections are not at the mercy of a process as unpredictable as qualification. From 2026 onwards, the World Cup will be expanded to include 48 teams. This will raise tournament revenue by about $1bn, and probably ensure that the likes of Italy and the US never miss out again.

The move, approved by Fifa last January, will also give more opportunities to traditional footballing minnows like Panama. The timing of the announcement was significant, as several sponsors who have stepped up to support Fifa during the recent crisis are based in either Qatar or China. Such countries, not known for their prowess on the football field, will have much more chance of reaching a World Cup through traditional qualification once the tournament has expanded.

“These countries are where the real financial growth is,” says Mr Wilson.

“Most western markets are fairly saturated and will only see marginal, if any growth in revenue.”