Inter Milan investment is a monstrous own goal

PUBLISHED : Friday, 03 August, 2012, 12:00am
UPDATED : Wednesday, 15 August, 2012, 10:58pm


Two years ago, Hong Kong businessman Kenneth Huang Jianhua tried to buy Liverpool football club in a deal that promised the Reds oodles of mainland money to build a new stadium.

His bid, which Monitor described at the time as 'stone crazy', came to nothing, and a couple of months later, the Premier League club was snapped up by American futures trader John Henry.

Given Liverpool's mediocre performance since then, Huang and his backers should be congratulating themselves on a lucky escape.

He didn't learn his lesson. Yesterday Huang hit the headlines again, this time as front-man for a consortium of mainland investors that is paying as much as Euro75 million (HK$714 million) for a 15 per cent stake in Italian football club Inter Milan. And as part of the deal, state behemoth China Railway Construction Corp is proposing to build Inter a brand-new stadium.

Unfortunately for Huang, Inter is such a dog financially that in comparison even loss-making Liverpool would have been a champion investment.

At first glance, Inter looks relatively attractive. With net revenues for the 2010-11 season of Euro211 million, the Italian club ranks eighth in Deloitte's Football Money League, one place above Liverpool.

Unfortunately, in European football, handsome revenues seldom translate into fat profits. The cost of signing and retaining star players is ruinous. In the 2010-11 season, Inter's wage bill came to a thumping Euro234 million. That's even more than Manchester United paid, and Euro23 million more than the club generated in revenue.

Add in all the other costs involved in running a top-flight football club, and in the year that ended in June 2011, Inter made a net loss of Euro87 million, bringing its cumulative losses over the previous five years to Euro665 million (see the charts).

The club managed to trim its wage bill last year, but with revenues under pressure and profits on player transfers drying up after the sale in 2011 of star striker Samuel Eto'o, Inter is expected to record a similar-sized loss for the season just ended.

Alas, things are only going to get worse. The bulk of the club's revenues - some 60 per cent - have traditionally come from selling television rights.

But a new deal to distribute broadcast fees more evenly among Italian clubs will eat into Inter's television revenues from domestic league games over the coming seasons.

Worse, with the club now on its fifth manager since the departure of Jose Mourinho two years ago, the team's on-pitch performance is suffering badly. Last season, Inter could manage only sixth place in Italy's Serie A league; not high enough to win a place next season in Europe's lucrative Champions League. As a result, Inter will miss out on at least Euro20 million, and possibly as much as Euro50 million, in broadcast fees.

Meanwhile, the club is struggling to generate income from its two other main revenue streams. Inter's turnstile takings are only around a quarter of those earned by the big English or Spanish clubs.

And at just Euro54 million in 2010-11, Inter's commercial revenues from sponsorships, kit sales and the like are paltry in comparison with the Euro172 million earned by Real Madrid or the Euro177 million raked in by Bayern Munchen.

In the past, Inter's losses haven't mattered greatly. The club's oil-refinery tycoon owner Massimo Moratti simply injected enough funds to fill the hole.

But that won't be possible in future. From next year, the new Financial Fair Play rules imposed by UEFA, the umbrella body for Europe's football associations, will come into force.

Intended to put club finances on a firmer footing, the new rules threaten to bar teams from European competition if they make cumulative losses of more than Euro45 million over the preceding two seasons.

Given that Inter is forecast to have lost around Euro80 million last year, that means the club will have to turn a profit of Euro35 million over the coming season if it is to stand any chance of getting back into the Champions League.

The only way Inter can hope to do that is by selling a clutch of its star players like Dutch midfielder Wesley Sneijder without making any costly new signings. And if it did that, the team's performance - and the club's revenues - would deteriorate even further, shutting Inter out of Europe completely.

As a result, it's hard to see how Kenneth Huang and his consortium can hope ever to generate a return on their investment.

In buying into Inter, they have scored a monstrous own goal.