Juventus - From A Whisper To A Scream

By anybody’s standards Juventus enjoyed a highly successful 2014/15 season. Not only did they capture the domestic league and cup double, winning the Serie Atitle for the fourth year in a row, but they also shone in Europe. There was a reminder of past glories as they eliminated Real Madrid and Borussia Dortmund on the way to reaching the Champions League final, where they only succumbed to mighty Barcelona after a closely fought encounter.

These achievements represented something of a triumph for the Juventus board and especially Andrea Agnelli, who had been appointed President in May 2010 after a disappointing season when the club only finished seventh, thus failing to qualify for the lucrative Champions League.

This necessitated what Agnelli described as “a complete overhaul of the team”, leading to a colossal financial loss of €95 million in 2011, but since those dark days Juventus have transformed themselves both on and off the pitch. Importantly, they have not lost sight of their “sporting performance on the field of play”, while improving their “financial performance in terms of revenue raising and cost containment.”

"French without tears"

These “two parallel and synergistic fronts” have become a recurring theme for Agnelli, who has emphasised the club’s dual goal of “achieving financial sustainability” while maintaining a “competitive edge in sport”.

The progress in the club’s finances was clearly demonstrated in the 2013/14 figures, the last published annual accounts, which Agnelli said “mark a turning point in the recent history of Juventus”, as the club delivered a small pre-tax profit of €0.1 million, compared to a €10.9 million loss the previous season, on record revenue of €280 million.

There was still a post-tax loss of €6.7 million, due to the impact of IRAP, a somewhat unique Italian tax that effectively penalises companies with high personnel costs, as these cannot be deducted for the purpose of this tax. Nevertheless, the loss after tax still improved by €9.2 million from the 2012/13 comparative of €15.9 million.

This improvement was largely driven by profit from player sales, which increased by €27 million to €35 million, mainly arising from Ciro Immobile to Torino, Simone Zaza and Luca Marrone to Sassuolo and Emanuele Giaccherini to Sunderland. Revenue also grew by €6 million (2%), despite a €15 million reduction in money from the Champions League, as commercial income surged €17 million (24%) and ticket sales increased by €3 million (9%).

This was partially offset by the wage bill rising by €21 million (13%) to €184 million. Although player amortisation increased by €3 million to €51 million, this was compensated by player write-downs being lower by an equivalent amount. Net interest payable was €1.6 million higher at €8.7 million, comprising €3.1 million financial income and €11.8 million financial expenses. The tax charge was also up €1.8 million to €6.8 million.

A €7 million loss might not seem a great deal to write home about, but few Italian clubs make money. According to the published accounts, only nine of the 20 clubs in Serie A were profitable in 2013/14.

Even that statistic is overly generous, as many clubs benefited from significant exceptional items, e.g. Inter’s accounts included €139 million for a one-off extraordinary gain relating to the valuation of the Inter brand. Similar gains, largely related to brand valuations, were included by Genoa €27 million, Verona €16 million and Cagliari €12 million.

If such “income” were to be excluded, then only six Serie A clubs would have reported profits in 2013/14 with the most profitable clubs being Napoli €20 million and Lazio €7 million. Juventus’ €7 million loss placed them in mid-table, while the largest effective losses were made by Inter €106 million, Roma €39 million and Genoa €27 million.

The fact is that Juventus have been steadily reducing their losses since the enormous €94 million deficit registered in the 2010/11 season (before tax). Agnelli called this “an intolerable loss”, but he noted that this was “a season for sowing seeds which we hope to harvest soon.” He has been true to his word, as the losses have been cut each year, first to €46 million in 2011/12, then to €11 million in 2012/13 and finally to break-even in 2013/14.

As the club stated in the 2013/14 annual report, there has been a “trend of marked improvement in economic performance”, but the club has still had to absorb a total of more than €150 million of losses in the three years before returning to the black.

Of course, the 2013/14 figures did benefit from high profits on player sales of €35.3 million, made up of €35.4 million gains (plusvalenze) less €0.1 million losses (minusvalenze), which was the most that Juventus had made from this activity since the €38.5 million recorded in 2007.

In fairness, the annus horribilis in 2010/11 was adversely impacted by a couple of special charges, namely an €11.7 million restructuring provision and a €7.4 million legal settlement. It is not uncommon for new executives to book all such costs in their first year, as the blame for clearing up a financial mess can be attributed to the previous management. This allows them to demonstrate improvements in the following years, e.g. the 2011/12 accounts included a write-back of the valuation of the Juventus Library, which reduced the loss by €14.5 million.

The importance of profits from player sales in Italy can be seen with Napoli, whose €68 million gain, largely from selling Edison Cavani to Paris Saint-Germain, was the major factor in them being the most profitable club in Serie Ain 2013/14. The only other clubs to earn more from player sales than Juventus were Roma €52 million (largely Marquinhos to PSG and Erik Lamela to Tottenham Hotspur) and Parma €44 million (mainly Ishak Belfodil and Lorenzo Crisetig, both co-ownership deals with Inter).

The other side of the player trading coin is player purchases, which are reflected in a football club’s accounts through player amortisation. This has been steadily increasing from €22 million in 2007 to €51 million in 2014, reflecting Juventus’ significant investment in overhauling the squad.

As a reminder, player amortisation represents the annual cost of expensing player purchases. To clarify this point, transfer fees are not fully expensed in the year a player is purchased, but the cost is written-off evenly over the length of the player’s contract – even if the entire fee is paid upfront. As an example, Stephan Lichtsteiner was bought from Lazio for €10 million on a four-year deal, so the annual amortisation in the accounts for him was €2.5 million.

Another element of player trading is when the club writes down the value of a player in the accounts, e.g. in 2012713 Felipe Melo’s value was reduced by €3.2 million. The largest such charge in recent times was the €12 million included in (you guessed it) the hefty 2010/11 loss.

Juventus’ €51 million player amortisation was the third highest in Serie Ain 2013/14, only behind Inter €67 million and Napoli €59 million. The slowdown in transfer activity at the other habitual big spender Milan is evidenced by their relatively low player amortisation of €41 million.

A good way of looking at a club’s underlying business model excluding player trading is EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation), which has turned positive in the last two years. The negative EBITDA in the previous two years was adversely impacted by the club’s failure to qualify for the Champions League.

Very few Italian clubs achieve a sizeable positive EBITDA, so Juventus’ achievement in generating €34 million is not bad at all, only surpassed by Napoli’s €36 million. However, to put this into context, Manchester United’s EBITDA of €182 million was over five times as much, which is a huge difference.

Juventus’ revenue rose €6 million (2%) from €274 million to €280 million in 2013/14, largely due to a €17 million (24%) increase in commercial income to €85 million, though ticketing revenue was also up €3 million (9%) to €41 million. On the other hand, broadcasting revenue fell €13 million (8%) to €153 million with Champions League receipts down €15 million to €50 million, though domestic TV money was up €3 million to €101 million. Player loans were €1.4 million lower at €1 million.

Revenue has grown by around two-thirds since the first season back in the top flight in 2007/08, rising by €112 million. The growth has been fairly evenly distributed, coming from broadcasting €47 million (up 44%), commercial €37 million (up 76%) and ticket sales €28 million (up 228%).

The importance of Champions League qualification is obvious, especially in 2012/13 when this drove €72 million of the revenue growth: €65 million from TV prize money and €7 million from more matches played. Domestic TV rights income has grown in the past few seasons, but the money earned under the collective selling system has still not matched the Mediaset contract that Juventus had up till 2010. The consequent revenue reduction in 2010/11 was compensated the following season by the additional €20 million from the new stadium.

Juventus’ annual revenue of €280 million is by far the highest in Italy, some €33 million ahead of Milan’s €247 million. Only three other clubs generate more than €100 million and they are a long way behind: both Napoli €167 million and Inter €156 million are more than €100 million below Juventus; while Roma’s €130 million is less than half of Juve’s total.

It is worth noting here the differences between how revenue is reported in Italy and other European countries. The European definition used by Deloitte in their annual Money League excludes player loans, gate receipts given to visiting clubs and increases in asset values. In this way, Juventus’ revenue is considered to be €280 million in Italy, but €279 million by Deloitte.

There is no doubt that Juventus are now the kings of the castle in revenue terms in Italy, but this has not always been the case. Indeed, their feat in growing revenue is underlined by looking at the relative performance against other Italian clubs. Back in 2007 Milan and Inter both earned substantially more than Juventus, but the bianconerihave shot ahead, overtaking the two Milan clubs in 2013.

Since 2007 Juventus’ revenue virtually doubled, increasing by €138 million. In the same period, Milan’s revenue only increased by €21 million (9%), while Inter and Roma actually saw their revenue fall, by €13 million (7%) and €18 million (12%) respectively. The only team to experience comparable growth to Juventus was Napoli with €128 million, but that was from a very low base.

Juventus have the 10th highest revenue in the world with €279 million, according to the Deloitte Money League, which sounds fantastic until you appreciate the magnitude of the difference with the elite clubs’ revenue, e.g. Real Madrid have almost twice as much with €550 million, while four clubs receive around €200 million more: Manchester United €518 million, Bayern Munich €488 million, Barcelona €485 million and Paris Saint-Germain €474 million.

Although Juventus’ €138 million revenue growth since 2007 is seriously impressive, it still pales into significance compared to the growth of the “big boys” in the same period, all of whom increased their revenue by circa €200 million or more: Bayern Munich €264 million, Manchester United €203 million, Real Madrid €199 million and Barcelona €195 million. Then there’s the oil fueled advances of PSG €397 million and Manchester City €330 million.

"Shout to the top"

The situation is in reality even worse than that, as the English clubs’ growth has been held back by the lower Euro exchange rate used in the 2014 Money League of 1.20 compared to 1.49 in 2007. If we were to use the current rate of around 1.40, then Chelsea’s 2014 revenue would be up to €454 million, implying a growth since 2007 of €171 million.

Unsurprisingly, this revenue disparity is the focus of Agnelli’s attention: “the economic fundamentals of our international competitors have made us face a clear reality: our gap with the best European clubs is still large and must be reduced if we intend to aspire to results in line with our international history.”

The President was in a more feisty mood after the Champions League final, “A €315 million turnover (note: including player sales) at the end of 2013/14 enables us to go toe to toe with the biggest European sides on the pitch”, but the truth is that Juventus need to further improve their financials to remain consistently competitive.

If we compare the revenue of the nine clubs above Juventus in the Money League, we can immediately see where the problem is, namely commercial income. OK, the €243 million shortfall against PSG is largely due to the French club’s “friendly” agreement with the Qatar Tourist Authority, but there are still major gaps to other clubs in commercial terms: Bayern Munich €207 million, Real Madrid €147 million, Manchester United €141 million and Barcelona €101 million.

Despite the advances from the new stadium, Juventus are also a fair way behind on match day income, especially compared to the English clubs (Manchester United €88 million, Arsenal €79 million) and the Spanish giants (Barcelona €76 million, Real Madrid €73 million). On the plus side, Juventus look pretty good in broadcasting revenue.

This is perhaps not a great surprise, as broadcasting is the main source of income for Italian clubs. It contributed 55% of Juventus’ total revenue in 2013/14, which is actually down on the 61% the previous season, due to the lower Champions League receipts. Commercial income’s share increased from 25% to 30%, while match day rose slightly from 14% to 15%.

Juventus’ total broadcasting revenue of €153 million is by some distance the highest in Italy with only Milan €120 million and Napoli €105 million coming anywhere close. Their revenue is made up of €91 million from Serie A, €50 million from the Champions League, €10 million from their archive and €2 million from their own productions.

Under the new collective agreement that started in the 2010/11 season 40% is divided equally among the Serie A clubs; 30% is based on past results (5% last season, 15% last 5 years, 10% history, i.e. starting from the 1946/47 season); and 30% is based on media profile, i.e. the number of fans (25%) and the population of the club’s city (5%).

Although this methodology is more equitable than the previous individual deals, it still benefits a club like Juventus, most notably the element linked to a club’s support, as Juve’s share was €46 million here, while the distribution for clubs like Sassuolo and Livorno was less than €2 million. Even Milan and Inter only received around €31 million for this part, meaning their total money was nearly €20 million lower than Juventus.

Italy has the second highest TV rights deal in Europe, only behind the Premier League, which continues to sign ever more impressive contracts, but significantly ahead of the other major leagues. The new deal runs for three years from the 2015/16 season, rising by 21% from €998 million a season to €1.2 billion. The largest increase was in the international rights, where the incumbent, MP & Silva, has increased its payments by 59% from €117 million to €186 million. Domestic rights are now worth over €1 billion a season, with the largest agreements signed with Sky Italia and Mediaset.

That’s reasonably impressive, but is dwarfed by the blockbuster new Premier League deal, which is estimated to be worth a striking €3.8 billion from the 2016/17 season, including €1.4 billion for international rights. This is one area where the Italian league needs to help its top clubs.

Juventus’ broadcasting revenue has been significantly enhanced in the last couple of seasons by money from European competitions, which was worth €50 million in 2013/14, comprising €43 million from competing in the group stage of the Champions League and €7 million for reaching the semi-finals in the Europa League.

That was pretty good, but amazingly Juventus earned the most of any team the previous season, when they pocketed a cool €65 million, even though they only reached the Champions League quarter-finals.

This was largely due to the vagaries of the market pool, which is dependent on: (a) the value of the broadcast deal in each individual country – Italy has one of the highest; (b) how many clubs reach the group stage and so share the market pool – this was only two clubs for Italy in 2012/13; (c) how far the club progresses in the tournament compared to other Italian clubs; (d) their finishing place in the previous season’s domestic league.

In this way, Juventus should receive a massive payout for their achievement in reaching the final of the 2014/15 Champions League, especially as they only have to share the market pool with Roma, who did not get past the group stage. My estimate for the market pool is €50 million, which would take Juventus’ total prize money to more than €80 million, a €30 million uplift on the 2013/14 results.

The new Champions League deal from the 2015/16 season will further increase the prize money with UEFA advising the European Club Association that clubs could expect a 30% increase in revenue.

Juventus’ success in Europe is also a key part of their strategy to grow commercial income, as Agnelli explained: “Involvement in the UEFA Champions League must not be considered simply as the season’s objective, but as an ongoing intermediate aim which is part of a broader mid- to long-term strategy intended to increase Juventus’ appeal on a global market.”

Good progress was made on this front in 2013/14 with commercial income rising 24% (€17 million) from €68 million to €85 million, comprising €60 million of sponsorship and advertising and €25 million other commercial revenue. As well as a series of new partnerships, including Samsung and Bosch, the accounts included a special €6 million bonus from shirt sponsor Fiat for the excellent sporting results.

This was the second highest commercial revenue in Italy in 2013/14, only behind Milan’s €98 million, but well ahead of Inter €59 million, Napoli €39 million and Roma €36 million.

Future growth will come in 2015/16 from both the shirt sponsor and kit supplier. Fiat (Jeep) have extended their agreement by six years to 2021, increasing the annual payment from €13 million to €17 million. Adidas will replace the long-standing Nike arrangement in a six-year deal worth €139.5 million, meaning that the annual payment will increase from €12 million to €23 million (excluding an estimated €2 million for supply of materials and performance bonuses).

That’s not too bad at all, but the problem for Juventus is that although these deals are better than their Italian competitors, they are still a long way behind the deals signed by their international competitors. In particular, Manchester United’s incredible new deals give pause for thought with Chevrolet and Adidas paying the equivalent of €66 million and €105 million respectively.

Juventus’ match day income rose 9% (€3 million) to €41 million, largely due to an additional €1.7 million from Europe and €1.3 million from friendlies. This was again significantly higher than their Italian rivals (Milan €29 million, Roma €22 million, Napoli €21 million and Inter €16 million), even though they have stadiums with far greater capacities.

Match day revenue has more than trebled after the move from the Stadio Olimpico to the £150 million 41,000 capacity Juventus Stadium with attendances increasing from an average of around 22,000 to more than 38,000. This was the first Italian stadium to be owned by its club rather than the local council and boasts 24 bars, 8 restaurants and 4,000 parking spaces.

Building such a fine stadium is a notable accomplishment that has put much distance between Juventus and its Italian competitors. As Agnelli said, “The Juventus Stadium has begun to bear fruit. Its material contribution to our business margins has come through higher ticket sales and the renewed appeal of the Juventus brand, reflected in higher revenues from sponsorship and advertising.”

As well as match day income, the club also earns money from many other activities with 70 “no-match day” events being staged in 2013/14, including the prestigious Europa League final between Sevilla and Benfica.

Recently Juventus signed a 99-year lease for the area next to the stadium, known as the Continassa project, which will be the venue for the new training and media centre plus new offices and other services.

Unlike some other Italian clubs Juventus do not earn much money from player loans, generating only €1 million in 2013/14. As might be expected, those clubs where player trading is an important part of their business model lead the way, specifically Genoa €8.6 million and Udinese €6.0 million.

The wage bill rose by 13% (€21 million) from €163 million to €184 million, comprising €168 million for player wages and technical staff plus €16 million for other personnel. The increase was largely due to €14 million for players signed during season and €4 million higher bonus payments.

This resulted in the wages to turnover ratio increasing from 60% to 66%, though this is still much lower than the 90% registered in 2010/11, the year of the big loss. This is nonetheless very manageable, though not as good as Napoli’s 53%. This statistic has been a fairly good indicator of financial stability, as can be seen by the problems experienced by those clubs with a high ratio: Sampdoria 111%, Genoa 103%, Parma 102% and Bologna 89%.

Juventus do benefit from the highest wage bill in Italy with their €184 million being much higher than domestic counterparts: Milan €151 million, Inter €116 million, Roma €108 million and Napoli €89 million.

Although Juventus have only increased their wage bill by 33% (€46 million) since 2010, this period has actually seen a reduction at both Milan by 12% (€21 million) and especially Inter, who have halved their wages from €234 million to €116 million.

However, it’s again a very different story internationally, as Juventus are in turn way below clubs like Manchester United €257 million, Real Madrid €250 million and Barcelona €248 million – and they also have much lower wages to turnover ratios of between 45% and 51%. The situation would be even worse if we were to use the current Euro exchange rate of 1.40 instead of the Deloitte Money league rate of 1.20, e.g. Manchester United’s wages would be over €300 million.

Juventus have traditionally been one of the major players in the transfer market, averaging gross spend of €60 million and net spend of €30 million. This has been fairly consistent, especially if you split the last few years into two four-year periods running to 2011 and then to 2015.

In the latter period, there was major investment in the squad in the two seasons in 2011/12 and 2012/13, but the following two seasons effectively saw the club balance its books. However, there has been a return to big spending this summer with gross spend of €92 million to date (on Dybala, Mandzukic, Zaza and Pereyra), partially offset by €69 million of sales (Vidal, Ogbonna and Berardi).

Juventus have proved sharp operators when purchasing players, though paradoxically their limited spending power compared to the very top clubs might be considered an advantage, as they often seem to be quoted a different/lower price than, say, their wealthy English counterparts.

Even with the slowdown in transfer activity in the last two seasons, Juventus still lead the way in Italy. For example, over the last four years Juventus had a net spend of €134 million with the next highest being Roma €99 million and Napoli €92 million. The Milan clubs’ malaise in recent times is partly explained by their much reduced transfer spend over this period (Inter €38 million and Milan just €2 million), though they have started to splash the cash again this summer.

On the negative side, debt has been significantly increasing at Juventus, primarily to finance the construction of the new stadium and cover the costs of rebuilding the squad. Up until 2010 Juventus enjoyed net funds, but net financial debt has now risen to €207 million as at 30 March 2015, comprising €223 million of gross debt less €16 million of cash.

Short-term bank debt had surged to €106 million, but this has since been cut to €20 million, thanks to a €50 million line of credit from EXOR, the club’s parent company, and a €52 million increase in the amount owed to factoring companies to €96 million. There is also €46 million owed to the Istituto per il Credito Sportivo for the stadium loan (at a rate of 4.383%) and €11 million owed to leasing companies for the Vinovo training centre.

It is worth noting the importance of stage payments to Juventus’ transfer policy, as there is a hefty €73 million owed to other clubs, though this is reduced to a net €22 million payable once €51 million of receivables are taken into consideration.

Although Juventus have generated cash from operating activities in each of the last two seasons, this has been more than absorbed by (net) player purchases and capital expenditure, leading to aggregate net cash outflows of €90 million. Apart from the increase in debt, this has also been funded by €120 million additional share capital in 2011/12 (net €118.6 million after issue costs), similar to the €102 million raised in 2006/07.

Even though Juventus made large losses in 2011/12 and 2012/13 before breaking-even in 2013/14, the club has confirmed that UEFA have granted them a licence for the 2015/16 season, so they have met the Financial Fair Play (FFP) requirements. They would have been helped by the various allowable deductions in UEFA’s break-even calculation, including “healthy” costs such as those incurred for the academy and stadium development plus the cost of players under contract before June 2010.

One of Juventus’ objectives in the future will be to be completely self-sustaining from a cash perspective, though the club’s own forecast for 2014/15 is a loss, as it continues its policy of allocating significant resources to further strengthen the first team and retain its major talents.

"A kiss in the dreamhouse"

Going forward, Juventus’ prospects will largely depend on their ability to grow revenue. Given the probable increase in Champions League money, 2014/15 should see revenue rise from €280 million to €320 million (€335 million less player sales of €15 million), while 2015/16 will benefit from the new sponsorship deals and the 20% increase in the Italian TV deal. This should take Juventus’ revenue up to €340 million, though it could be higher or lower depending on the Champions League (progress in the competition, number of Italian clubs qualifying).

Profits from player sales should also be much higher in 2015/16 following Arturo Vidal’s move to Bayern Munich. Of course, if Paul Pogba were to be sold for anything like the €80 million reportedly offered by Barcelona, that would have a significant benefit on Juventus’ finances, as it would represent almost pure profit. Obviously, such a transaction would not be so good from a sporting perspective, but manager Max Allegri admitted, “When you talk about certain figures, it’s difficult to say no.”

It would be a shame if the club were forced to sell their brightest talents, as the recent years have shown that they have successfully recovered from the scandals of a few years ago, as Agnelli noted: “Juventus has transformed itself. It has regained its winning status – that has always set it apart.”

"Oh, the Swiss!"

Furthermore, the club’s economic progress is inextricably linked to success on the pitch, in particular to qualification for the money-spinning Champions League, so it would make little sense financially to weaken the team, especially after the club has lost two of its talismen in the shape of the masterly Andrea Pirlo and the effervescent Carlos Tevez.

Allegri put his finger on Juventus’ principal challenge, “The difference in economic potential between clubs in Italy, those in England, or the big two in Spain is very high.” As we have seen, it will be important for the club to further grow commercially to help narrow that gap. Agnelli acknowledged this, “We are aware that the internationalisation of our brand is fundamental”, though he also knows that this is partly out of his control, requiring a stronger hand by the Italian authorities in improving the match day experience and better marketing the league.

All that said, Juventus are already one of the top ten clubs in the worlds. Even with the financial disparity against the top English and Spanish teams, they somehow found a way to reach the Champions League final, so it is far from a hopeless case. Allegri explained how this could be addressed, “To reduce this gap we need to use our ingenuity. We need to go out and find talented young players, we need to have a solid core of Italian players on which to build – as Juventus does – and then we need foreigners who can provide a really high technical quality to the group.”

The turnaround at Juventus has been deeply impressive, but how far can they go? That’s a difficult question to answer, but the fans’ response would probably be along the lines of the club’s famous slogan “fino alla fine” – until the end.

Read More

Juventus - Black Night, White Light

As the Italian league entered its winter break, Juventus could look back on a highly successful campaign so far. Not only were they were joint leaders along with Milan, but they were the division’s only undefeated team, having won nine and drawn seven of their matches. In their best start for many years, the bianconeri have beaten both of their rivals from Milan and look poised for a return to their former glories.

Juventus have won a record 27 domestic league titles, not including two that were lost after the events of the 2006 Calciopoli match-fixing scandal, and have triumphed six times in Europe (two Champions League, three UEFA Cups and one Cup Winner’s Cup), so the current team has a long way to go before it can be mentioned in the same breath as its illustrious predecessors, but the early signs are promising.

However, nobody is taking anything for granted in Turin, especially as Juventus also started well last year before fading badly over the second half to finish seventh for a second successive season, which meant that they failed to qualify for Europe. In fact, by their own lofty standards, this has been a particularly barren period for Juventus, as they have not won a trophy for five long years.

"Conte - Shout to the top"

This season somehow feels different following the appointment of former Juventus captain Antonio Conte, who replaced Luigi Delneri in May. Although relatively inexperienced at the top level, Conte has managed to lead two clubs (Bari and Siena) to promotion to Serie A. Described by president Andrea Agnelli as “the first piece in the jigsaw to return to winning ways”, Conte has “brought a new mentality to the club”, according to the tenacious midfielder Claudio Marchisio.

The emphasis is on the team with every player working his socks off, though Conte has also impressed with his willingness to change tactics depending on the opposition. Although he is famed for his intense, attacking style, the young manager has also tightened up his side’s defence, largely with the same personnel as last season.

That said, there has been a lot of activity in the transfer market with general manager Beppe Marotta responsible for a major overhaul of the playing squad since his arrival from Sampdoria in May 2010. Although the club’s fans may have been disappointed that no major star arrived this summer after talk of Sergio Aguero, Giuseppe Rossi and Alexis Sanchez, this was compensated by the arrival of some very capable players.

"Lichtsteiner - Run, Forrest, run"

Midfield experience was recruited in the shape of Andrea Pirlo from Milan and Michele Pazienza from Napoli, while the exciting young Chilean Arturo Vidal from Bayer Leverkusen has provided much energy to the engine room. The weakness at full-back was addressed by the signing of the athletic Swiss Stephan Lichtsteiner from Lazio, while Mirko Vucinic from Roma has added some attacking guile.

The other major change this season has been the new stadium, where the fans are much closer to the action and can provide the proverbial 12th man. It is not clear how many points this has been worth to Juventus, but their record at home since the move has been strikingly good.

So this is in many ways a “Newventus”, but there are still a few important links to the club’s past. In the dressing room, this is provided by club captain, Alessandro Del Piero, who is in his final season, while the Agnelli family has long played an important custodial role. Andrea’s late father Umberto was also president between 2003 and 2005, while his uncle Gianni (“l’avvocato”) is a legendary figure at the club.

Although Juventus have shown a significant improvement on the field of play, it’s a different story off the pitch, as they reported a huge loss of €95 million for the 2010/11 season, a dramatic worsening from the previous year’s €11 million loss, when the club actually made a small €2 million profit before being hit with a hefty €13 million tax charge.

Unsurprisingly, this is the largest loss in Juventus’ history and it was described as “intolerable” by Agnelli, though he did add that these accounts were “the fruit of a desire to maintain Juve’s competitiveness.” That’s a fairly standard excuse from a director of a football club, but in fairness Juventus have paid the price for their attempts to transform the club, both through the investment in the new stadium and particularly the many changes on the staff side.

Up to this year’s annus horribilis, Juventus had made a pretty good job in balancing their books, recording profits before tax in three of the preceding four years, even when they were demoted to Serie B in 2006/07. That year, they were forced to offload many players in order to trim the wage bill, which also had the benefit of delivering outsize profits on player sales of €40 million.

"Marchisio - Black & White Boy"

Last season this activity produced €17 million profit, which is lower, but still not too bad. The real damage was done at the operating level, largely due to expenses of €195 million being considerably higher than revenue of €154 million, leading to negative EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation) of €41 million, which was exacerbated by very large non-cash flow expenses of €61 million.

On the face of it, these are indeed disastrous figures, but a closer analysis of the reasons for the increase in the size of the loss provides some cause for optimism, as much of it is due to once-off factors that should not be repeated to the same extent in future years.

Of course, there are also some fundamental factors behind the larger loss, most notably the double whammy in television income, which has dropped by €43 million from €132 million to €89 million. The reduction was split evenly (more or less) between the move to a centralised sale of Italian TV rights and the failure to qualify for the Champions League, which was only very slightly offset by participation in the Europa League group stage.

Although total wages slightly increased by €2 million to €140 million, the underlying player wage bill was actually cut by €9 million, which was disguised by a €3 million rise in bonus payments and higher leaving incentive, which grew €8 million from €4 million to €12 million, thanks to pay-offs to Mauro Camoranesi, David Trezeguet and Jonathan Zebina in order to get them off the payroll.

Other once-off staff costs include a €6 million increase in the write-down of player values from €6 million to €12 million, partly for players that have already left (Tiago and Zdenek Grygera) and partly for those who no longer figure in the club’s plans (Amauri). There is also a €12 million provision for dismissed staff and a €12 million increase in the cost of purchasing temporary player rights from €3 million to €15 million (mainly Quagliarella €4.5 million, Pepe €2.6 million, Matri €2.5 million and Marco Motta €1.3 million).

Exceptional items have increased by €10 million year-on-year, as last season’s €3 million credit for the transfer of the commercial area around the new stadium has been replaced by a €7 million provision for a tax inspection for the years between 2001 and 2008. Finally, it should be noted that the 2011 figures were “boosted” by the tax charge being €11 million lower than the previous year.

All in all, this set of accounts represents a classic example of a company cleaning house, so it would be surprising if the expenses were as high the next time around, even though there may still be a few once-off charges to process.

Of course, most football clubs do make losses and Italy is no exception, e.g. in 2009/10 (the last year when we have published accounts for all the clubs), only four clubs in Serie A managed to break-even: Fiorentina €4.4 million, Catania €2.5 million, Livorno €1.8 million and Napoli €0.3 million.

So, it is perfectly understandable that Juventus made a loss, but it is the sheer size of the loss in these accounts that came as a bolt from the blue, especially as over the previous two seasons (2008/09 and 2009/10) Juventus had looked like a good example of sustainability with aggregate losses of just €4 million. That was a drop in the ocean compared to the losses suffered by the other big clubs in the same period: Milan €77 million and Inter (an astonishing) €223 million.

However, the tables have well and truly turned and it is now Juventus that have the dubious honour of the highest loss in Serie A in 2010/11 with their €95 million surging ahead of Inter €87 million and Milan €70 million.

Much of this unfortunate reversal is clearly due to the steep revenue reduction. In 2009/10 Juventus’ revenue of €205 million was not far behind Inter’s €225 million, about the same as Milan’s €208 million and importantly comfortably ahead of all other Italian clubs with Roma the next closest with just €123 million, but this was no longer the case in 2010/11. In particular, Roma’s revenue of €144 million, aided by their Champions League run, was only €10 million below Juve’s €154 million.

This will also impact Juve’s seat at Europe’s top table. In 2009/10 they were placed tenth in Deloitte’s European Money League, which would be the envy of many clubs, but is a long way short of their peers abroad. For example, the Spanish giants, Real Madrid and Barcelona, generate around €400 million, which is twice as much as Juventus, as they continue to benefit from substantial individual TV deals.

Both Manchester United and Bayer Munich also earn around €100 million more, the English taking advantage of significantly higher match day revenue, while the Germans’ commercial expertise puts Italian clubs to shame. This vast revenue discrepancy will make it difficult for Juventus to achieve their stated objective of “being a leading club in Europe”. Indeed, the revenue reduction in 2010/11 is likely to mean that they will fall out of the top ten in next year’s Money League.

Juve’s challenge is not helped by the underlying problems in Italian football. Andrea Agnelli went so far as to complain of “a penalising regulatory situation for the top teams in Italian football” where government regulations were “to the detriment of investment.”

His views were supported by a report from the Italian Football Federation (FIGC) this year that concluded, “The current business model is difficult to sustain and not very competitive.” Its president, Giancarlo Abate, noted that in particular match day income, sponsorships and merchandising were in need of urgent attention to reduce the reliance on TV money. Juve’s courageous move to construct a new stadium is very much the exception to the rule with other clubs’ revenue growth potential significantly restricted by the fact that their grounds are owned by the local council (to whom they have to pay rent).

These problems have been reflected in the lack of revenue growth of Italian clubs. In 2005 Juventus were as high as third in the Money League, but their revenue has actually declined by 33% (€75 million) since then. Milan’s revenue also fell during that period, while Inter’s growth of 32% is less than half that achieved by other leading European clubs, e.g. Barcelona 115%, Manchester United 99%, Arsenal 96%, Real Madrid 74% and Bayern Munich 69%.

Even more striking is the absolute difference between the clubs. As an example, in 2005 Juventus’ revenue of €229 million was around €20 million better than Barcelona, but it is now nearly €300 million less. In fact, this year’s revenue is only 9% higher than they generated in Serie B in 2006/07 (lower if you include profit on player sales).

The reality is that Juve’s revenue has essentially been flat for many years, only really growing when they qualify for the Champions League. The driver for the investment in a new stadium is obvious when looking at the club’s revenue mix, which shows match day income at a pitiful 8% of total revenue. That is by far the lowest of any team in the top 20 clubs in the Money League with the next lowest being the other Italian clubs (Milan 13%, Roma 16% and Inter 17%).

In 2009/10 Juventus earned an impressive €110 million from their domestic TV rights deal, which was the highest in Italy, even more than Milan €96 million and Inter €89 million, and considerably more than all other Italian clubs, e.g. Napoli, Lazio and Fiorentina only got around €40 million, which was just over a third of Juve’s income.

Years of protest at this lack of a level playing field finally led to a new collective agreement being implemented at the beginning of the 2010/11 season. There is a complicated distribution formula, which still favours the bigger clubs, though the result is a clear reduction at the top end. Under the new regulations, 40% will be divided equally among the Serie A clubs; 30% is based on past results (5% last season, 15% last 5 years, 10% from 1946 to the sixth season before last); and 30% is based on the population of the club’s city (5%) and the number of fans (25%).

Juventus had forecast that this would result in a revenue reduction of €9 million in a presentation to analysts in March 2011, but, as they admitted in the latest accounts, there was “an additional penalisation compared to what was expected” and the actual difference was a massive €23 million.

There has been much discussion over how the number of fans (worth 25% of the deal) would be calculated, but this was resolved in November. An article in La Gazzetta dello Sport suggested that this would produce an additional €4 million revenue for Juventus, but the net reduction would still be a painful €19 million.

The decrease would have been even higher if the total money negotiated in the new collective deal by media rights partner Infront Sports had not been approximately 20% higher than before at around €1 billion a year. This cemented Italy’s position as the second highest TV rights deal in Europe, only behind the Premier League, but significantly ahead of Ligue 1 and La Liga. In fact, Italy’s deal is worth twice as much as the Bundesliga.

That’s particularly impressive, given how little is received for foreign rights, though it was recently announced that the incumbent rights holder, MP & Silva, will pay an additional 30% for these rights for the three years starting from the 2012/13 season (up from €90 million a year to €115-120 million). It is still not completely clear what will happen with the 2013-15 deal for domestic rights, but €2.5 billion has already been secured from Sky/RTI for 12 of the 20 Serie A clubs, so this is likely to show a small increase as well.

One of the key risks identified in the Juventus annual report is failure to qualify for the Champions League, which “could potentially have an adverse impact on the company’s financial position and income statement.” In truth, there’s no doubt about this, e.g. in 2010/11 Juventus earned just €1.8 million from the Europa League, while the previous season they received €21.5 million from their adventures in the Champions League, leading to a €20 million fall in revenue.

The prize money for Europe’s flagship tournament increased last season, so Roma received €30 million for reaching the last 16, while Inter got €38 million for going a round further. The same is true for the Europa League, but the highest pay-out there was only €9 million. Those are just the television distributions, but there are also additional gate receipts and bonus clauses in various sponsorship deals.

Juve’s failure to qualify for this season’s Champions League will again hurt them financially, which is why it is imperative that they achieve that goal this time around. Unfortunately, their task is even more difficult now, as the Italian league has lost a place to the Bundesliga, due to lower coefficients. From this season, only the top two teams in Serie A will be assured of direct entry, while the third-placed team goes into the preliminary qualifying round. Ironically, this has been Italy’s best season in the Champions League for a while with three teams reaching the last 16 (Milan, Inter and Napoli).

Although the most popular club in Italy, Juventus have struggled to convert this support into meaningful match day revenue. This is an issue for all Italian clubs, but especially Juventus, where this revenue stream fell from €17 million to €12 million last year, largely due to €3.2 million lower fees from friendly matches. This is just behind Roma’s €19 million, but is far below Inter (€33 million) and Milan (€31 million), who generate much more revenue at San Siro.

The comparison is even worse when looking at leading clubs abroad, which is perhaps best illustrated by a comparison with Manchester United and Arsenal, who earn €126 million and €108 million respectively. This works out to around €4 million revenue a match, which is over ten times as much as Juventus (€0.4 million).

Not only do Juventus have the lowest average attendance of the top European clubs in the Money League at around 22,000, partly because many of their fans are located in the south of Italy, but this was only the 10th highest in Serie A last season, lower than clubs like Palermo and Genoa. In comparison, Inter’s average crowd was over 58,000, while Milan and Napoli averaged 50,000 and 45,000 respectively.

Of course, Juventus were limited by the capacity of their old ground, which was very low at 28,000, and this also suffered from having hardly any premium seats or corporate boxes, which are the money spinners elsewhere. This is why Juventus decided to move to a new stadium that could maximise their revenue earning potential.

A splendid inauguration ceremony took place on 8 September including a friendly match against Notts County, the team who gave Juventus their famous black and white striped shirts in 1903. The new 41,000 capacity stadium has been built on the site where the reviled Stadio Delle Alpi once stood and features 8 restaurants, 24 bars and 4,000 parking places.

"All my colours"

The atmosphere and visibility are far superior to the old ground, as the closest seats are just 7.5m from the pitch. Although not as large as some modern stadiums, chief executive Aldo Mazzia explained, “We believe that it’s better to have a stadium that’s a bit smaller but almost always full and closer to the team than to have a much bigger one that only gets sold out for a few games.” Indeed, every game to date has been a sell-out, though there have been quite a few empty seats, due to ticket agencies unable to fully sell their allocation.

The cost has increased to €150 million, including €15 million for the Juventus Museum that is scheduled to open in the first half of 2012, but it has largely been financed by two important initiatives.

First, Sportfive acquired the stadium naming rights for a guaranteed minimum of €75 million, of which €42 million has already been paid to the club and the remaining €33 million will be paid over the next 12 years in equal annual installments of €2.75 million. From 2011/12, this will be booked as €6.25 million annual revenue. Although a sponsor has yet to be identified, this is only an issue for the broker and does not affect Juventus financially. Second, Juventus sold the commercial land adjacent to the stadium for €20 million to Nordiconad, who will build a shopping area called Area 12.

"Money don't Matri 2 night"

This meant that Juventus only had to take on additional debt of €60 million, which was provided by Istituto per il Credito Sportivo. As at 30 September 2011, €52 million of this had been loaned to the club.

The new stadium looks the business in both senses of the word, as it will be a seven-day a week operation, hosting numerous events and guided tours of the museum. Indeed, the club has estimated that match day revenue will increase significantly from the current €12 million to €25-35 million, with the number of premium seats being particularly important, e.g. Arsenal make 35% of their match day revenue from just 9,000 premium seats at the Emirates.

The first quarter results for 2011/12 support these claims, as the number of season tickets rose by 61% to 24,137, which is impressive enough, but the revenue increased by 183%. Although there have been some teething troubles with the safety inspections, Mazzia predicted that the new stadium would give it a competitive advantage over its Italian rivals of “at least four or five years”, which makes sense if you consider that Juventus signed their stadium agreement with the city of Turin way back in July 2003.

Commercial revenue is not too bad at €54 million, though it is €2 million lower than 2009/10, mainly due to performance clauses linked to Champions League participation. In Italy, Inter have now caught up, while Milan still do better commercially. Perhaps of more relevance is the fact that Juventus are a long way behind leading clubs abroad, e.g. Bayern Munich earn an astonishing €173 million.

This is one of the problems of being tainted with Calciopoli, as Juve’s commercial income has not yet reached the heights they achieved before those events (€75 million in 2006). In 2005 Tamoil signed a five-year shirt sponsorship deal that was believed to be the highest in football history at €22 million a season with a possible five-year extension worth even more. This was more than twice the size of any other deal with an Italian club, but was cancelled in the light of the scandal.

These days, Juventus have adopted an innovative dual shirt sponsorship strategy with BetClic paying €8 million for the first team shirt and Balocco €3.5 million for the second shirt and youth sector. Both of these deals are in their last season, so there is an opportunity to sign better deals, though Juventus have cautioned that the “current economic situation has a negative impact on the sport sponsorship market.” In contrast, the long-term partnership with kit supplier Nike has been extended until 2015/16 for an impressive €12.4 million a year.

On the plus side, Juventus’ sponsorship deals compare favourably with those at other Italian clubs: (a) shirt sponsors: Milan – Emirates €12 million, Inter – Pirelli €12 million, Napoli – Lete €5.5 million and Roma – Wind €5 million; (b) kit suppliers: Milan – Adidas €13 million, Inter – Nike €12 million, Roma – Kappa €5 million and Napoli – Macron €4.7 million.

However, the issue is that these agreements are worth much less than those at foreign clubs. For example, the following all have shirt sponsorships worth more than €20 million a season: Barcelona, Bayern Munich, Manchester United, Liverpool, Manchester City and Real Madrid.

Like all football clubs, the most important expense for Juventus is their wage bill, which was €140 million in 2010/11, split between players €127 million and other personnel €13 million. They have admirably managed to hold this at around the same level for the last three years. In fact, last season they actually cut underlying player wages by €9 million, though this was off-set by leaving incentives.

Nevertheless, the important wages to turnover ratio has worsened from 67% to 91%, due to the substantial revenue reduction. This takes it way above UEFA’s recommended upper limit of 70%, so Juve need to either grow revenue or cut costs.

Despite their efforts, their wage bill remains one of the largest in Italy, albeit a long way behind Milan and Inter, who cut theirs to “only” €190 million in 2010/11, thanks to lower performance bonuses. An analysis by La Gazzetta dello Sport this summer of salaries for the first team squad reinforced Juve’s third place in the wages league with €100 million, behind Milan €160 million and Inter €145 million, but it’s far from certain that their figures are accurate.

The other major element of player costs, namely amortisation has been on a rising trend, up from €22 million in 2007 to €35 million in 2011, though it is still less than the €52 million reported by Inter last season.

Amortisation is the annual cost of writing-down a player’s purchase price, which is booked evenly in the accounts over the length of his contract, e.g. Milos Krasic was signed for €16 million on a 4-year contract, so his amortisation works out to €4 million a year.

The growth in amortisation would imply that Juventus have been active spenders in the transfer market and this is indeed the case. Apart from the year that they were relegated to Serie B, they have been very much a buying club. In fact, over the last three seasons their net transfer spend of €129 million is the highest in Serie A with only Napoli coming anywhere close with €98 million. The next highest is Roma with €35 million, while both Inter and Milan have actually had net sales proceeds in this period.

This summer alone they splashed out nearly €90 million, though €37 million of that was due to exercising options on players such as Matri €15.5 million, Quagliarella €10.5 million, Pepe €7.5 million and Motta (yes, really) €3.75 million. In addition, large sums were spent on Vucinic €15 million, Vidal €10.5 million, Lichtsteiner €10 million and Eljero Elia (from Hamburg) €9 million.

This was part of what the club has described as the “profound upgrading of the first team” in order “to return as soon as possible to stably competing at a high level in Italy and Europe.” However, Beppe Marotta has warned that the club will not be making any big money signings in the January transfer window, which probably explains the loan signing of wayward striker Marco Borriello from Roma, though there have been faint whispers of Carlos Tevez arriving from Manchester City.

This high level of transfer activity has contributed to an increase in Juve’s debt, though the main reason is obviously the investment in the new stadium. For the last few years, the club’s focused approach meant that it actually enjoyed net funds, but financial debt was up to €121 million at the 2011 year-end. This comprised €61 million bank loans, €45 million of stadium debt to ICS (a 12-year loan at 4.383%) and €18 million of finance leases to Unicredit (mainly for the Vinovo training ground).

The financial position would have been worse without the phased payment of transfer fees, which means that Juventus owe other football clubs €63 million (though they are, in turn, owed €33 million by other clubs).

That said, they did improve their net debt by €25 million in the first quarter of 2011/12, largely thanks to a €72 million advance payment by Exor, their 60% majority shareholder controlled by the Agnelli family, which was their share of the €120 million capital increase. Exor has also undertaken to pay €9 million corresponding to the rights of LAFICO (the Libyan Arab Foreign Investment Company), the club’s second largest shareholder with 7.5%, but whose stake has been frozen as a result of sanctions applied to the North African country.

The remaining €39 million should be covered by the other, smaller shareholders, though this will require an act of faith on their behalf, as the share price is less than half the €1.30 four years ago when the club launched a similar €105 million recapitalisation. Indeed, it was €3.70 when the company was floated back in 2001.

Assuming that the money is raised, Mazzia said that it would “finance the club’s life for the next five years”, though this must assume a return to a self-financing model. Although recent years have required two sizeable capital raisings and new loans, there have been special circumstances (Calciopoli and the new stadium), so this is not entirely unfeasible, though it will require improvements on the pitch.

However, it is likely that Juventus will still have to rely on the support of Exor, which has always been forthcoming, but their fortunes to a large extent depend on the performance of their other companies, notably Fiat, which is struggling along with all other car manufacturers.

The club’s balance sheet has been weakened by last year’s gigantic loss, so it now has net liabilities of €5 million, as opposed to the €90 million net assets the year before, though it should be acknowledged that player values in the accounts are certainly lower than their worth in the real world.

From now on, Juventus will also have to confront the challenge of UEFA’s Financial Fair Play (FFP) regulations, which will ultimately exclude from European competitions those clubs that fail to live within their means, i.e. make a profit.

Fortunately, the big loss in 2010/11 is not taken into consideration, so all those cost provisions begin to make sense. That said, UEFA will take into account losses made in 2011/12 and 2012/13 for the first monitoring period in 2013/14, so Juve’s accounts need to rapidly improve.

However, they don’t need to be absolutely perfect, as wealthy owners will be allowed to absorb aggregate losses (“acceptable deviations”) of €45 million, initially over two years and then over a three-year monitoring period, as long as they are willing to cover the deficit by making equity contributions. The maximum permitted loss then falls to €30 million from 2015/16 and will be further reduced from 2018/19 (to an unspecified amount).

Although Juventus’ stated plan is “to develop a sustainable business model”, they have also admitted that 2011/12 will show another “significant loss”, though not as bad as that reported last season. Worryingly, the €26 million loss for Q1 2011/12 was actually €8 million worse than the prior year, but that is largely timing, due to fewer games played.

In terms of how their figures will look in the future, the first thing to do is to adjust for all the exceptional items in 2010/11, which would have a €43 million positive impact. This assumes: (a) no further need for provisions for tax and dismissed staff; (b) reducing (but not eliminating) charges for player write-downs, leaving incentives and temporary purchases to more normal levels.

Aldo Mazzia has stated that the revenue from the new stadium will increase to €32 million, including the doubling of gate receipts and €6 million for naming rights. This would deliver an additional €20 million revenue, though there will also be a rise in associated costs, such as new staff. In addition, the club will have to bear depreciation on the stadium investment and interest on the loans, though these are excluded for the purposes of the FFP break-even calculation.

"Vidal - Ears are not enough"

Of course, the major swing factor is qualification for the Champions League, which would be worth around €30 million, maybe more depending on progress. This helps explain the heavy investment in the playing squad, which can be considered a bet on success.

It is difficult to speculate on what will happen to the wage bill. My analysis of the arrivals and departures, based on the gross salary figures published in La Gazzetta dello Sport, suggest that there will be a small fall next year, but it is safer to assume the same level. On the other hand, player amortisation is almost certain to increase (€3 million in Q1), so I have assumed €10 million per annum. In addition, if the club qualifies for the Champions League, then bonuses should rise to previous levels, meaning an increase of €8 million.

Profit on player sales is by its nature lumpy business, but Juventus have been fairly consistent over the past four years, generating €14-17 million a season. It is therefore reasonable to assume that they will produce similar sums in future, though they might struggle to match this in 2011/12, as they reported less than €6 million from the summer transfer window. They might add to this in January, perhaps with the departures of the out-of-favour Krasic and Amauri.

All those adds and drops would produce a far more palatable loss of €18 million, which would be well within the FFP acceptable deviation. For the purposes of FFP, UEFA also exclude some expenses that are considered to represent positive investment, such as youth development (€6 million per the analysts’ presentation) and community (estimated at €2 million), which would bring the figure down to a €10 million loss.

There is yet another get-out clause in UEFA’s regulations that states that clubs will not be sanctioned in the first two monitoring periods, so long as: (a) the club is reporting a positive trend in the annual break-even results; and (b) the aggregate break-even deficit is only due to the 2011/12 deficit, which in turn is due to player contracts undertaken prior to 1 June 2010.

Although the estimates above are by no means a fait accompli, if Juventus do get reasonably close to those figures, my guess is that UEFA would look favourably on their finances, as they would clearly be moving in the right direction and setting the right example.

"Celebrate!"

This is further evidenced by Juventus’ focus on the youth sector, as seen by the money spent on the training centre. The results are clear to see with all but one of their youth teams leading their respective leagues at the end of 2011, including the important Primavera.

This investment is a sure sign that this is intended to be a long-term project. As Conte put it earlier this season, “After three months of work you cannot talk about a finished house with a roof ready.” The return to former glories is a long way off, but there is no doubt that Juventus have taken some important first steps on a long journey.

Read More