How Does FIFA Make Money?

Football (soccer) over the years has become the most popular sport in the world. It is played in over 200 countries and no other sport has managed to achieve such a fan following. In the early part of the 20th century, there were more international competitions, and with them, more need to oversee, organize, and promote. As a result, FIFA (Fédération Internationale de Football Association or International Federation of Association Football) was formed in 1904.

FIFA says that its mission is to develop and improve the game of football everywhere and for all. FIFA is a non-profit organization that invests most of its earnings back in the development of the game. The earnings come from organizing and marketing major international competitions, with the most popular being the World Cup, which happens every four years. Other competitions like the continental championships and the FIFA Confederations Cup are also quite popular. We look at the simple and effective business plan that has helped FIFA become a successful corporate leader.

Economies of the World Cup

The 2018 World Cup is being held in Russia and is a huge event in terms of the numbers it achieves for everyone involved. Of course, FIFA is the sole body charged with organizing the event and has access to all the revenues, but everyone is happy as long as they get a cut from the billion dollar revenues the event generates. The World Cup host country is decided upon by a bidding process, and it is a fierce competition. U.S., Canada and Mexico have been chosen to host the event for its 23rd edition in 2026.

Organizing such a huge and popular event requires a lot of investment, especially in building and enhancing world-class infrastructure. Thus, the country wins the bid attracts a lot of interest from investors, which can help to boost the economy.  With so many countries vying to host the World Cup, FIFA naturally gets a big bargaining chip and gets away with dictating most of the terms. FIFA does not invest in any infrastructure created for the Cup; the onus for that lies solely on the host nation. However, FIFA gains a lot by selling television rights, marketing rights, and licensing rights, as well as revenue form ticket sales. And FIFA’s costs are minimal. FIFA pays the local organizing committee for organizing and conducting the World Cup. It also pays prize money to the participating nations, accounts for the travel and accommodation of players, and supports staff and match officials. In addition, it makes available for the host country a FIFA World Cup legacy fund to be used in the future for development of the game in the country.

Apart from the cost related to FIFA events, FIFA’s major costs also involve development expenses, personnel expenses, and a financial assistance program.

FIFA by the Numbers

FIFA has adopted the International Financial Reporting Standards (IFRS) reporting standards as part of a good governance policy. The numbers are reported around its marquee event—the World Cup. FIFA’s revenue stood at $734 million in 2017, totaling over $5.65 billion between 2015-2018. FIFA records its revenue in a four-year cycle leading up to World Cups, therefore most of these figures are for a period between 2015 and 2018. Most of the revenue, 98% came from revenue contracts, other sources of income include board licensing and investment income. Out of the event-related revenue that is recorded in the period between two world cup events, $3 billion was attributable to sale of television rights during the 2015-2018 cycle.

In a bidding war between ESPN and Twenty-First Century Fox Inc. (FOXA), FOX outbid Disney’s ESPN and paid $400 million to FIFA for television rights through the 2022 World Cup. Facebook Inc. (FB) Twitter Inc (TWTR) and Snap Inc. (SNAP) are all offering millions of dollars to FOX for highlight rights. 

The next biggest source of income is the sale of marketing rights which totaled $1.45 billion in the cycle leading up to the current Word Cup. FIFA also gains from licensing rights, hospitality/accommodation rights and other revenues which account for $363 million, $575 million, and $268 million respectively. Notably, revenue from ticketing rights are 100% owned by a direct subsidiary of FIFA. During the 2014 World Cup, revenue for ticket sales was $527 million. Although the revenue has not yet been reported, over 4.9 million tickets were requested by the end of sales phase 2 for the 2018 World Cup. Additionally, FIFA has a healthy and sustainable balance sheet as 65% of their total assets are in cash, or cash equivalents.  

FIFA’s 2015-2018 expenses of $5.56 billion can be broadly divided between event-related expenses of $2.747 billion (49.4%), development and education projects of $1.650 billion (29.7%), and FIFA governance & administration of $891 million (16%).

Other notable expenditures from 2015-2018 are on Football Governance which include legal costs, information technology, and building expenses. This came in for a total of $136 million. Lastly, FIFA spent $132 million on Marketing & TV Broadcasting. In 2017, investments were $923 million which is $180 million (16%) in savings against the budget. 

Business Strategy

After analyzing the above numbers, it can be easily concluded that organizing the FIFA World Cup alone is a very profitable and low-risk venture for FIFA. With relatively cheap inputs in players, personnel, and ready infrastructure (created by the host country), FIFA manages a revenue of over $5.6 billion.

FIFA also constantly improves its strategy like it did with its sponsorship model. There are currently three World Cup sponsorship levels: FIFA Partners, FIFA World Cup Partners, and National Supporters. FIFA Partners help develop the FIFA brand and engage in corporate social responsibility. FIFA World Cup Sponsors are given the rights to promote their brand and the World Cup. National Supporters are headquartered in the host nation and have rights to promote their brands within the host country. FIFA is tweaking the model a bit, keeping the top two tiers intact and changing the “National Supporters” to a regional model with up to 20 companies from five regions (North America, Africa, Asia, South America, and Europe). Additionally, ahead of the 2018 and 2022 World Cups, FIFA has implemented a new commercial structure that allows companies to buy regional sponsorship packages.

The Bottom Line

Although FIFA is a well run organization, there has been times where they charged with mismanagement and malpractice over the bidding process for the World Cup. (For more, see: Financial Fiasco of the 2022 Qatar World Cup.). The president and other executives who were named in the controversy were arrested on charges of corruption. Over its 114-year history, only nine people have headed the organization, which begs the question of transparency and good governance. Nonetheless, with its little-to-lose business strategy, FIFA is turning out impressive earnings numbers. It does not have to invest in or take on the financial risk of building infrastructure for competitions. Yet, it is FIFA that rakes in revenues in huge numbers, primarily from TV and marketing rights.

https://www.investopedia.com/articles/investing/070915/how-does-fifa-make-money.asp?utm_campaign=rss_articles&utm_source=rss_www&utm_medium=referral

Author: Stocks News Feed

Welcome to Stocks News Feed, Join the Conversation. Don't forget to Share if you like an article.

Leave a Reply

Your email address will not be published. Required fields are marked *