UEFA Club competitions – financial background of the new structure

26.10.2021

Checking in at the halfway mark of the group stages of the UEFA club competitions, in the UEFA Champions League many groups are progressing as expected by most pundits, with the biggest teams looking most likely to qualify for the next stages. FC Sheriff Tiraspol, however, appears to be writing a story of their own with a fairy-tale start in the first three games, topping their group ahead of giants like Real Madrid CF. Much the same can be said about the Europa League, where the strongest clubs appear to be heading towards the next stages. In all previous years, such a recap would end with these two tournaments, but starting from this year, another competition has been introduced.

The UEFA Europa Conference League has been inaugurated this season as the third club competition devised by UEFA in order to involve more teams in the midweek European fixtures. The novel tournament gives a continental platform for smaller teams to shine on, offering broader exposure and monetary rewards at the same time. The distributed revenues come from increased aggregate UEFA revenues and a reallocation of these amongst the existing competitions.

The new cycle of the UEFA club competitions kicked off in this 2021/22 season, bringing drastic changes to European football's landscape. While the premier competition, the UEFA Champions League (UCL), remains untouched, the governing body shook up the format of the UEFA Europa League (UEL) with the inception of a tertiary continental competition, the UEFA Europa Conference League (UECL). The new tournament features smaller European clubs, who most likely would have not been able to play international football, and offers them a platform to kick off from. Not only do these clubs gain multi-national media and broadcast attention, they also receive significant monetary incentives for participating through UEFA's attempt to redistribute its revenues to slightly lower tiers of the pyramid. The major format changes are the reduction of the UEL's size from 48 to 32 teams, and a revamped knockout round before the round of 16 in the secondary and tertiary tournaments featuring the third-placed teams in a higher competition and the second-placed teams in the group phases of the actual competition. Finally, the UECL winner gains automatic entry to the following year's UEL.

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But how is UEFA financing an additional competition? The money distributed to UECL clubs comes from a combination of increased expected total UEFA gross revenues and a redistribution of income through the competitions. Firstly, UEFA estimates gross commercial revenues to increase by 8% to EUR 3.5bn compared to the 2019/20 season, the most recent season for which final data was available. A large proportion of this is obviously transferred over to the clubs, amounting to EUR 2,732m in total, of which the UCL (EUR 2,032m) clubs receive the most, followed by the UEL (EUR 465m) and the UECL (EUR 235m) teams. The second stream comes from the change in allocation, as a marginal EUR 8m is deducted from the UCL distribution, while a significant EUR 45m amount is taken from the UEL. It must be noted though that the size of the UEL has decreased, meaning revenue per club actually increased with the redistribution of income, thus clubs qualifying to this competition are better off on average compared to before. At the same time, competition is expected to concentrate as the weaker teams are relegated to a level that is more suitable for them in the UECL.

Examining the sources clubs in each competition receive their money from also demonstrates apparent differences. In all three tournaments two distinct methods of financing are tied as the most important source of income, with prize money being one of the two for all competitions. In the UCL, it is payments connected to UEFA club coefficients that are just as significant in an attempt to reward historic good performers and appease the biggest clubs. This motivation is diminishing in the lower competitions, where TV (UEL) and participation fee (UECL) are the other significant contributors. Especially in the UECL, it appears that UEFA wants to reward clubs up front for qualifying to the main stages with a larger proportion of money, since for these clubs the EUR 2.94m paid out most commonly represents a large chunk of their annual budget.

Breaking down how much a team can earn through their performances also suggests that winning the UECL is incentivised the least once qualified, though the winner gains automatic entry to the UEL the following year. The maximum combined prize money and participation reward a club can earn by winning all their group games and lifting the champion's trophy is EUR 85.14m in the UCL, EUR 23.41 in the UEL, and EUR 15.49m in the UECL. If compared to the fixed participation benefit, the UECL has the lowest maximum prize money / participation reward multiple of 5.27, while the UEL has the highest at 6.45 (the UCL's being 5.44). Another compelling aspect of the UEL and UECL is that qualifying from the group is not only incentivised by advancement in the tournament, but also through monetary rewards. In the UEL, EUR 1.1m and EUR 0.55m are paid out, while in the UECL, group winners and runners-up receive EUR 0.65m and EUR 0.33m, respectively.

Moving on to the UEFA coefficient payouts, it is evident how this arm of the distribution system is relevant mostly for the UCL. While the maximum amount of prize money in the UCL was only 3.64 and 5.50 times higher compared to the UEL and UECL, UEFA coefficient payouts are 8.61 and 25.55 times higher, respectively. These 'legacy' payments are arguably justified, since the big teams participating in the main stages of the UCL are the true money makers for UEFA. Finally, the TV pool is difficult to quantify on a per team basis, since it depends on how many teams participate from the same country and also on how far they progress in the competitions, but the aggregate levels show the consumer demand for each competition.

After dissecting how each of the respective three competitions compensate clubs, let's investigate whether their differences in on-pitch strength are in proportion with the large variations in potential revenues. Using squad values as a proxy for the quality of the competition, it is evident that the UCL is by far the strongest one. The aggregate squad value of the UCL clubs is 2.73 and 6.61 times higher than the UEL and UECL clubs, certainly lower than the total revenues multiples of 4.31 and 8.52. But this is entirely reasonable, since the three competitions are not direct substitutes for each other. There is increased demand for higher quality games and players, and these are also scarce resources, thus it is warranted that elite talent should be compensated at a disproportionally high level.

Focusing on the squad values in the three tournaments, it can be seen that 86% of total squad value is from Big 5 league clubs in the UCL, while these figures are 71% and 65% in the UEL and UECL. Furthermore, the number of Big 5 clubs also decreases from 19 in the UCL to 11 and 4 in the UEL and UECL, respectively. The latter statistics align with UEFA's perceived objective of smaller footballing countries represented on the European scene, but squads from the Big 5 are still much more valuable on average, therefore it remains to be seen whether the smaller clubs will be truly competitive even in the UECL.