European Soccer Has An Inflationary Bubble That Will Eventually Burst – Forbes

This summer has seen a clear bubble in transfer fees and valuations in the prominent five European soccer leagues, above all in the English Premier League. This is because of the monumental international and domestic (BT Sport and Sky Sports) television deals coming into effect from 2016 through to 2019. The deals have enabled a flood of fiscal overreaching at the lower-ranked and more domestic-orientated EPL clubs, allowing them to compete with inflated budgets against the wealthier, high-tier clubs.

(From L) Paris Saint-Germain’s Brazilian midfielder Lucas Moura, Paris Saint-Germain’s Italian midfielder Marco Verratti and Paris Saint-Germain’s Brazilian forward Neymar walk on the pitch at the Celtic Park in Glasgow, on September 11, 2017, on the eve of the UEFA Champions League match between Celtic Glasgow and Paris Saint-Germain. / AFP PHOTO / FRANCK FIFE (Photo credit should read FRANCK FIFE/AFP/Getty Images)

The flood of excessive rewards through these television deals has also sent the financial clout of the larger EPL clubs to new heights, and we’re witnessing an inflationary bubble only expanding, leaving prominent European leagues to position themselves for a burst in the years to come.

European soccer is in an inflationary bubble, and its epicenter is in England.

This gratuitous expenditure started preemptively last summer and has barreled into some obscene purchases, with the acquisition of Neymar by Qatari-owned Paris Saint Germain in France the most preposterous purchase in soccer history considering that his five-year contract is estimated to pay him $1 million per week.

The Football Observatory announced that it expected spending to continue to rise over the next half-decade. One catalyst for such a bubble is American corporations like Amazon, Google, Apple, Facebook and Netflix, which are continually diversifying into areas they view as lucrative. Any intention to garner Britain’s most valuable television rights (the Premier League), which are split between Sky and BT under the current three-year deal, will prompt an immediate aggressive response. Sky, a British sports television institution, could add up to 45% to its next bid in 2019, equating to $2.3 billion more from 2019 until 2022. This would only fuel the bubble.

Currently, Sky pays $6.7 billion (the exchange rate has changed) for 168 matches per season from 2016 to 2019 with BT. The international rights at the beginning of this deal, in addition to the domestic rights, would now equate to $10.8 billion.

Just think about the numbers: Premier League clubs created a $995 million transfer deficit in the recent transfer window while spending across big five leagues increased for the fifth successive year. Summer spending of $4.4 billion in 2016 jumped up 38% to $6.07 billion this time around. In general, Spanish clubs’ average outlay in the summer window was $40.5 million, trailing Serie A’s $65.5 million and trailing the Premier League, whose clubs, on average, spent $106.5 million on new players, again because they have the revenue surge through TV deals.

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