Lyon fans have had one of their toughest summers in recent history. Ever since early June, there has hardly been a day without a new rumour linking one of OL’s major players to another club. Many football aficionados started to believe that Jean-Michel Aulas, who has almost single-handedly turned OL into a French powerhouse, had simply ‘lost it’. He had announced, at the end of last season, marked by a victory in Coupe de France, but also a failure to qualify for the UEFA Champions’ League for the first time in 13 years, that the club would have to make ‘economic adjustments’. Europe’s finest competition had been a milking cow for the club for years, enabling it to maintain a squad assembled with millions, full of international players with comfortable salaries.
However one should not forget Aulas also built his club on a business model: buying promising players, growing them, and selling them to the biggest clubs in Europe, generating surplus value (the sales of Benzema, Malouda, Essien, Diarra generated a net surplus value of approximately 95M€. Players like Edmilson, Tiago, even though sold under the 15M€ bar, also brought in some interesting cash). Champions’ League was Lyon’s showcase, helping its players grow, and giving them visibility. The virtuous circle seemed unbreakable. So how did Lyon get into such a precarious financial situation?
Before the Claude Puel era, things began to change. Lyon started to spend bigger and bigger on supposedly high-profile Ligue 1 players (Kader Keita, Jean Makoun, Ederson…). As OL failed to win its 8th Ligue 1 title in 2009, it poured even more money into the transfer market: Aly Cissokho, Michel Bastos, Bafetimbi Gomis and Lisandro Lopez joined the club for about 72M€. Yoann Gourcuff followed a year later for 23M€ and a 4.4M€ annual gross salary. OL saw its payroll skyrocket, with both new players being attracted by high salaries, and current players being offered contract extensions to stay with the club (Cris, Kim Källström). As many of these signings failed to deliver, the first pillar of OL’s financial strength broke: its ability to generate surplus value on re-sales. Keita left for Galatasaray for 50% of his original fee; Makoun joined Aston Villa for 60% of what Lyon had paid Lille. The spell was broken.
Under Puel, the club saw its second financial pillar starting to shake: its ability to win titles. Titles bring money, generate merchandising sales, fill up stadiums. Another virtuous circle broke.
The failure to qualify for the Champions’ league last year was much more than a symbol of the club’s weakening process: it was the collapse of the OL’s last financial pillar, the one that managed to hold the club together despite the high payroll and the lack of titles. OL Groupe started to communicate on net losses at the end of seasons, instead of posting a net income.
These figures confirm this slow but constant decay of the club’s financial situation:
· Its yearly turnover was 192M€ in 2009, 160M€ in 2010, 154M€ in 2011, 145M€ in 2012 (-25% in 3 years)
· Players sales generated 38M€ in 2006, 73M€ in 2007, 56M€ in 2008, 52M€ in 2009, 14M€ in 2010, 21M€ in 2011
· Ticketing revenues were 25M€ in 2010, 19M€ in 2011, 18M€ in 2012
· Merchandising revenues were 28M€ in 2010, 25M€ in 2011, 19M€ in 2012
· Payroll was 80M€ in 2009, 121M€ in 2010, 111M€ in 2011
When you add all these to an estimated 20M€ shortfall due to the lack of Champions’ League football, I think you better understand the very dangerous financial situation of the club at the end of last season. So, as they got accustomed to big-money signings and squads bolstering a proud selection of Ligue 1’s best players, few OL fans really measured what Aulas meant back then. They slowly began to understand the club’s new policy, as players started to leave the club, while no signings were made to replace them. Now that this period is over, it is time to concentrate on the game. But did Aulas reach his financial goals? As he built his club on the three major pillars I just described (player sales; Champions’ League Football; titles that generate ticketing and merchandising sales), he sailed throughout the dangerous waters of last summer with three big priorities in mind:
· The first priority: reduce the payroll
The club’s payroll had become absolutely unbearable. Not only was it extremely high, but sometimes the wages paid to some players didn’t match their performance on the field. An ageing Cris made approximately 4.2M€ a year; Aly Cissokho’s cost was 2.4M€; Ederson 2.8M€. Aulas took to the media and publicly criticized the ‘dinosaurs’ that made a lot of money but didn’t really deliver on the pitch, like Cris, Bastos, Cissokho or Källström.
In total, 12 players with professional contracts left the club this summer: Hugo Lloris, Cris, Ederson, Ishak Belfodil, Yanis Tafer, Thimothée Kolodziejczak, John Mensah, Enzo Reale, Källström, Cissokho and Jeremy Pied. Add to that a significant number of youngsters or backup players whose salary was negligeable (Seguin, Valverde, Fontaine, Chavalerin, Al-Kamali).
Lloris, Källström, Cissokho, Ederson and Cris’ departures alone allowed the club to reduce its annual gross payroll by about 18M€! Taking into account other departures, supplementary salary costs such as bonuses and taxes, and depreciation of past transfer fees, Aulas estimated that these departures will help the club save about 30M€ a year.
· The second priority: bring in some fresh cash
This year might have been the worst year for a club organizing such a huge ‘summer sale’. Most foreign powerhouses did not have the liquidities they could have poured in on some OL stars just a few years ago. Lyon had to negotiate, play smartly, and be open to any club willing to pay a decent amount of money for almost any of its players (Maxime Gonalons, Dejan Lovren, Gourcuff and Lisandro being exceptions). Let’s be clear about one thing: transfer fees were NOT a priority for OL. Reducing the payroll was. Take into account the gloomy transfer market and the overpriced OL signings of the past seasons: it was almost impossible for Lyon to generate surplus value out of the players it sold.
Fans focused on the (perceived) low transfer fee for a player like Källström (3M€ to Spartak Moscow). But it allowed the club to offload a huge salary, and getting that amount of cash for a player who is about to turn 30 is not such a bad deal. The only sale on which many feel OL could have done better is Lloris, who joined Tottenham on a last-minute move that generated much media coverage, and a 10M+5M fee (10M€ cash, 5M€ bonus, % of a possible surplus value in a future transfer). The star keeper’s value was probably more around 20M€, but OL has little time and no other offer. As for Cissokho, despite the 15M€ Lyon paid for him, the 6+2M€ deal with Valencia looks like a very good move for Lyon.
In total, bonuses partly included, Lyon received 32M€ in transfer fees, its highest since fiscal year 2009.
· The third priority: spend smartly
OL still had in mind to reinforce the team for limited cost. Its will to re-focus on youth was not only a necessity, but also a return to the business model it built its success on. For sure Aulas hopes that the likes of Clement Grenier, Alexandre Lacazette or Samuel Umtiti will generate massive cash within the next few seasons, for a very low cost as they are homegrown players. As a consequence, the club targeted rather cheap signings throughout Ligue 1, and never spent more than 4M€ on a player (Fabian Monzon from Nice). It also tried to almost systematically sell one if its players every time it made a new signing: Pied left for Nice (3M€) when Monzon arrived; Réale joined Lorient while Arnold Mvuemba signed with OL (1M€); and Réveillère almost became a PSG player as Milan Bisevac left the capital.
In total, OL spent 7.7M€ in transfer fees (which means its net transfer balance is approximately 25M€), and many believe that, despite Lloris’ departure, the club is not weaker than last year.
To sum things up, despite (justified) concerns from fans, mockery throughout France regarding the ‘summer sales’ at OL and Jean-Michel Aulas’ apparent madness, taking a look back at this summer market from a financial point of view brings a lot of perspective. It is safe to say that Lyon is in a much better situation than a few months ago, when it appeared the club was in danger. Aulas managed to save 30M€ on wages and bring in 25M€ of fresh cash, which should keep the clubs safe and afloat for some time. Whatever some may say, he is still one of the brightest, wisest minds in French football. He keeps managing his club like a business (which is especially important as OL Groupe is a public company), and seems to have learned from the errors of the Puel era.
The lights are green again, and the squad is still full of quality players and exciting prospects, that have between their hands (and feet) OL’s future. The new stadium, a project that has seen highs and lows but seems more likely to happen than ever, will also be key to giving the club a new impetus. Because in the end, it’s all about what happens on the pitch. This is the true key to OL’s resurgence.