Time out for football's TV money-go-round

A relative calm will descend this week and clubs probably have until 2004 to consider their response to that year's anticipated wage explosion.

Of course, the revenues of the top teams in each of the 'Big Five' European leagues (Spain, Italy, England, France and Germany) will continue their upward trend as they have since 1995. The 94 clubs in the top league of these countries generated £2.6 billion between them in 2000, a £1.4bn increase over five years.

It is unlikely that a comparable rate of revenue growth can be maintained, driven as it is by television-generated receipts.

Perhaps this is the perfect time to follow the lead of JP McManus and John Magnier, who last week increased their stake in Manchester United, and invest in a listed football club.

After all, when Watford float next month, there will be 27 British clubs to chose from.

Then again, not one has increased in value in the last 12 months. The investor may be better advised to look further afield.

One school of thought believes that continental clubs stare enviously at the scale of merchandising income that bolsters the bank accounts of their Premier League counterparts.

But merchandise sales generate tiny profits in comparison with the profit from television contracts, where the costs are almost zero.

In Spain, Italy and France, broadcast revenue represents more than half of the top clubs' income; although less absolute revenue is generated than by clubs in the Premiership, the profit margins are higher. The latest broadcast deal will have a major impact on the balance of Premier League revenues, ensuring that clubs become ever-more dependent upon television income.

Suddenly, an investment in Southampton or Bolton looks slightly less appealing because qualification for European competition, particularly the Champions League, is a financial necessity.

Apart from the obvious injection of revenue, of equal importance is the fact that European-generated income is incremental against your domestic rivals. The rest get nothing: your team either qualifies or it doesn't.

As a result, smaller sides in the five major European leagues face intense playing and financial competition.

Consider the Premier League: how many sides can actually win the title and how many have a realistic chance of qualifying to play in Europe's top club competition?

Any drop in domestic television receipts, representing as they do more than half of a club's income, would have a severe, adverse affect. The story is the same in Italy, France, Germany and Spain.

Consequently, in some 'smaller' continental leagues, domestic games are viewed as part of the overall strategy to facilitate qualification to European competition.

For the dominant clubs in these leagues, a Champions League berth represents a huge percentage of total revenues and, more importantly, is immensely profitable when measured against the fiscal performance of domestic competitors.

Perhaps McManus and Magnier were only interested in a short-term punt last week when an acquisition of 6.5 per cent of Man Utd's shares for £8m lifted their value by 10 per cent.

For the same amount of money, they could have bought any number of British clubs outright, although few stand any chance of qualifying to play at the highest level in the near future. Alternatively, they could have bought a 75 per cent stake in FC Porto, one of Portugual's representatives in the Champions League

When Porto overcome Barry Town (8-0 up from the first leg), they will face Grasshoppers of Zurich (market value: £1m) for a place in the first stage of Europe's premier competition.

With this comes guaranteed income of around £8m, payable by the end of November.

Porto, whose share price has actually increased in value during the past year, is a classic example of a consistently dominant team in a small European league.

A big fish in a small pond, perhaps, but one likely to be as profitable as any in the ultracompetitive major leagues and one always challenging for a seat at the top table, no matter what direction future domestic television deals take.