Article by Jacopo Carmassi
The author is Senior Financial Stability Expert at the European Central Bank. All views expressed are exclusively those of the author and do not implicate in any way the European Central Bank nor any other entity to which the author is affiliated.
A football fairy tale in the heart of Europe
Im Herzen von Europa, in the heart of Europe, as the hymn of Eintracht Frankfurt goes. It is 22:53 of Tuesday, 1 November 2022 as a whole city in the heart of Europe is holding its breath. Only 60 seconds are left before the end of the extra time of Sporting Lisbon–Eintracht Frankfurt, game played for the sixth and last matchday of Group D in the group stage of the 2022-2023 UEFA Champions League, and Sporting Lisbon is about to take a corner kick.
Meanwhile, the other two teams of the same group are playing in France, with Antonio Conte’s Tottenham facing Olympique de Marseille. Group D is definitely exciting – in fact, the most exciting of this Champions League season, with all four teams still having the chance to qualify for the round of 16. Eintracht is leading 2-1 and no complex calculation is needed: the only result to keep their Champions League dream alive is a win in the Portuguese capital.
Between Seferovic’s goal against Nürnberg in May 2016 and the final whistle in Lisbon in November 2022, Eintracht Frankfurt has lived a football fairy tale – in stages. In 2017 Eintracht plays the final of the DFB-Pokal – the German national cup (equivalent to Coppa Italia in Italy), losing it against Borussia Dortmund; but in 2018 Eintracht plays the final again, this time winning it with a triumph in Berlin against Germany’s most emblazoned Club, Bayern Munich. In Bundesliga, after more than 20 years, the Frankfurt eagles manage to stay on the left side of the table; in Europe, after some participations to Europa League, Eintracht Frankfurt achieves the extraordinary result of winning the cup, defeating and eliminating Barcelona in its Camp Nou fortress in the quarter finals, and then winning the final of Sevilla against Glasgow Rangers after penalties shootout. The triumph of Sevilla allows the Frankfurt team to raise a European cup again 42 years after winning the UEFA Cup, but also to get the ticket for its first historical participation to the UEFA Champions League in the 2022/2023 season.
The recent history of Eintracht Frankfurt is a sport fairy tale. However, it is a well-known fact that in modern football fairy tales are hardly created by a mere “team alchemy of the good year”, or the “genius” of one or two players, let alone by a series of lucky events. On the contrary, planning is of the essence, and not only from one season to the other, but in the medium and long term. The economic and financial strength is clearly not the only dimension to consider, but it is extremely relevant and it can often be a necessary (although not sufficient) condition to win leagues and raise cups. Therefore, the recent economic and financial history of Eintracht Frankfurt may be helpful to better understand some of the key ingredients of the recipe for success of the Frankfurt eagles.
The numbers behind the fairy tale: game changer in 2016 and the records of 2019
During the 2006-2016 decade, the balance sheet and P&L of Eintracht Frankfurt Fussball AG were not affected by any major bumps (the sources of balance sheet and P&L data used in this article are the financial reports of Eintracht Frankfurt Fußball AG from 2006 to 2021, which refer to calendar years). The size of the balance sheet remained relatively stable, with an average of around € 35 mln (and a peak of € 46.5 mln in 2008); profits (or losses) in the P&L were relatively limited, with a positive profit average of around € 0.5 mln (best result in 2006, with a € 7.9 mln profit; worst result in 2012 with a loss of € 5.9 mln). But the history of Eintracht – both its sport history and its economic-financial history – changes in 2016: after the arrival in March of the new coach Niko Kovač, who will bring the Club to the permanence in Bundesliga in May, in June a new sport director was appointed, Fredi Bobic, who will keep this role until May 2021 (curiosity: Bobic is one of the 1996 European champions with the German national team – he played in the group stage game against Italy, ended with a 0-0 which led to the elimination of The Azzurri).
In this new phase, the Club embraces a new philosophy based, among other things, on the investments in football talents and their developments, as well as on the strengthening of the scouting department, rather than on free transfers: while in previous years replacing the talents leaving the Club had turned out to be a challenging task, the ability to renew the squad but at the same time preserve and even increase its competitiveness became one of the key strengths of Eintracht. As we will see, numbers illustrate well this paradigm shift.
Furthermore, since 2019 fixed assets have also significantly increased due to the investment for the creation of the ProfiCamp, a modern multifunctional structure close to the Deutsche Bank Park, with a value of € 34.1 mln. Since September 2021, the ProfiCamp is the new Eintracht “house”, offering a number of services ranging from the sport structures to offices. The ProfiCamp is located in a street named – needless to say – “Im Herzen von Europa”; and, as a further tribute to the European projection of the Club, the meeting rooms bear the names of past contenders of Eintracht in European competitions, among which also Juventus.
The expansion of the balance sheet in recent years has been funded in part through an increase in own funds and in part through an increase of other liabilities and in particular debts. The latter were related first to the transfer market in 2019, but then to bank debt which was used partly to deal with the Covid crisis and partly to fund the important infrastructural investment in the ProfiCamp. To note, until 2020 the Club did not have any bank debt, to which the Club only resorted due to extraordinary events (Covid) and infrastructural investments. As of yearend 2021, total bank debt was € 52.30 mln (around one third of total liabilities).
With regard to the capital position, at the end of 2019 and just before the Covid crisis, the ratio of own funds on total balance sheet was 34% – also thanks to a capital increase of € 15 mln in April 2018 and to the record profit of € 36.88 mln in 2019. In April 2021 the Club proceeded with a further capital increase of € 21.7 mln, which helped mitigate but could not entirely neutralize the effect of the Covid crisis on the capital position. After the losses of € 37.17 mln in 2020 and € 9.91 mln in 2021, largely related to the fall of matchday revenues, in the course of 2022 the ratio own funds/total balance sheet dropped to 4.1%. Considering the capital ratios of previous years (generally higher than 20% or 30%), a strengthening of the capital position is a possible scenario in the short and medium term.
Turning to the P&L, in 2019 the Club reached a record amount of € 308.82 mln in total revenues – three times the value of 2016. After an inevitable slowdown during the Covid crisis, with € 151.86 mln in 2020, revenues have again been higher than € 200 mln in 2021, reaching € 212.98 mln – more than double compared to the value of 2016 (€ 103.62 mln) and about 3.5 times compared to the € 61.5 mln of 2011, ten years earlier.
The revenues from players sales have played a key role. In 2019, thanks to the sale of Luka Jović to Real Madrid for about € 60 mln and Sébastien Haller to West Ham for € 50 mln, Eintracht had total revenues for players transfers of € 111.48 mln: this amount contributed to the record value of € 308.82 mln in total revenues. The previous higher value for revenues from player transfer was approx. € 16 mln and had been recorded in 2018 (in previous years the amount had almost always been lower than € 10 mln (these figures on transfer revenues are available on a “gross” basis, i.e. they are not the net gains/losses on player trading; the residual book values of sold players are included among costs).
Therefore, the revenues of € 111.48 mln from players sales in 2019 represent an extremely important step in the recent financial history of Eintracht Frankfurt. The positive players sales trend for Eintracht seems to continue – for example, with the € 40.27 mln revenues from players transfer in 2021 (which included € 23 mln for the sale of André Silva to Leipzig in the summer of 2021, after that Eintracht had bought him from AC Milan in September 2020 for € 3 mln); and with the more recent transfer of Filip Kostić to Juventus in August 2022, at a price more than double compared to the approx. € 6 mln for its transfer from Hamburg to Eintracht in July 2019.
Another important share of revenues was that related to TV rights, which increased from € 35 mln in 2016 to € 101.89 mln in 2021 (main revenue item in 2021, about 48% of total revenues) – supported also by the participation to European competitions. Marketing and sponsor revenues also increased substantially, from € 32.9 mln in 2016 to € 46.82 in 2021. Furthermore, the set up in 2020 of a wholly-owned subsidiary tasked with the management and marketing of the stadium (owned by the city) and surrounding areas and structures further contributed to support revenues (also to note: the capacity of the Deutsche Bank Park will soon increase from 51.500 to 60.000). Finally, another wholly-owned subsidiary established in the 2019, EintrachtTech, carries out the tasks relative to digitalisation, which is considered by Eintracht a key dimension also for the economic development of the Club.
Costs under control: winning without biting off more than one can chew
Vis-à-vis total turnover more than doubled between 2016 and 2021, operating costs had a similar evolution over time, increasing from € 107.29 mln in 2016 to € 221.85 mln in 2021. Amortization costs, mostly related to players’ registration rights, have been a relatively limited share of total operational costs (on average 10% in the period 2016-2021). Clearly, personnel costs – and in particular costs for players – have a crucial role when it comes to cost controlling.
Personnel costs doubled for Eintracht between 2016 and 2021, from € 48.97 mln to € 97.6 mln, and had an almost four-fold increase in ten years (it was € 26.05 mln in 2011), but this growth has not endangered the Club’s economic and financial sustainability thanks to the increase in revenues discussed above. As between 2006 and 2016, also from 2017 to 2021 the P&L result was on average close to zero (around € -0.6 mln), although with a much stronger variability (first due to the positive records of 2019 and then to the impact of Covid). The wages/revenues ratio has remained quite low, with values generally in line with those of Bundesliga and significantly lower than those of the other Big Five in Europe (it is worth mentioning that the economic and financial criteria embedded in the German Club licensing framework are likely to have played an important role with regard to the incentives towards the pursuit of economic and financial sustainability).
Therefore, Eintracht has markedly increased over time the wages of its players (main item of personnel costs) and by doing so it managed to attract very strong players, and players with great potential, who could help to strengthen the competitiveness of the team. But this has not jeopardized the economic and financial sustainability, thanks to the increase in revenues also boosted by improving sport results, which in turn made the Club even more appealing for potential new players – both in terms of prestige and economic conditions.
A virtuous circle was therefore triggered, allowing the Club to move forward in its step-by-step path of sport successes, but without biting off more than it could have chewed – i.e. without incurring in systematic losses in the attempt to attract the best players in order to maximize the chances of winning (in this way, running the risk of triggering a vicious circle).
Furthermore, thanks to ability to attract and develop talents, the sale of the Club’s “jewels” did not hinder the continuation of sport growth: the latter turned out to be independent from individual players even when this was about players who had made the difference on the field – as for example in the case of the sales of Jović, Haller and Rebić, the three players of the “Büffelherde” (buffalo herd – an expression used for the first time by Eintracht goalkeeper Kevin Trapp to emphasise the impressive strength of the trio).
The ingredients of success: beyond numbers
Many elements have contributed to the recent success of Eintracht, and these include:
- pursuit of economic and financial sustainability;
- ability to invest in talents and develop them;
- gradual financial and sport growth of the Club;
- ability to preserve and further strengthen the competitiveness of the team regardless of individual players;
- direct management of the stadium (although not owned);
- attention for digitalization.
The Eintracht case shows that it is possible to win, also in Europe, without systematically spend more than one earns, and that what matters is a process of growth based on the investment on the talent of players and on value creation – both on the field and on the books.
Beyond numbers, it is worth mentioning three further, relevant factors which have a qualitative nature but are not less important.
- The first factor is Club stability, related to two elements: the German 50+1 rule which prevents external investors from getting the majority of voting rights (with some exceptions); and the more than 20-year-long permanence in the Club of the President, Peter Fischer, and of other key Eintracht managers like the CEO, Axel Hellmann, and the CFO, Oliver Frankenbach and the CEO, Axel Hellmann (who has just been appointed also co-CEO on an interim basis, together with Oliver Leki from SC Freiburg, of the DFL Deutsche Fußball Liga, the German league responsible for Bundesliga and 2. Bundesliga)..
- The second factor is the mentality: the belief in their own abilities transpiring from the Club, the technical staff and the players, who many times have faced openly and with no fear – and defeated – also more emblazoned teams, in both national and European competitions.
- The third factor is the “environment”: in the long “procession” of Eintracht supporters towards their stadium before the home games, and then during matches, one can feel the unity – of Club, team, supporters, sponsors (incidentally, the contract with the main sponsor, Indeed, has been recently extended until 2026) and city, which give the impression of becoming one single entity, always supporting the Club, even when sport results are not satisfactory (as in a not too distant past). After all, the word “Eintracht” means “concord”.
After the 1-1 draw in Mainz on 13 November, in the last Bundesliga matchday before the pause for the World Cup in Qatar, Eintracht Frankfurt is on the fourth place in the table: at the end of the season, this would mean qualification for the 2023-2024 Champions League. But, before thinking about the next season, the Frankfurt eagles need to first focus on the current season, which will also offer a fascinating match with Naples for the round of 16 of the Champions League (21 February 2023 at the Deutsche Bank Park in Frankfurt, 15 March 2023 at the Maradona stadium in Naples). However, no matter how this season will end, the growth process and the successes of Eintracht Frankfurt in the last few years give reasons to expect that the eagles having their nest “Im Herzen von Europa” will continue to fly high in the sky of élite football.