A Giant Surrounded by Mist
Written by Umberto Pelà (25.09.2023)
With the Mercato having come to an end, it is important to understand the financial situations of our Serie A clubs. One tool to do so and take stock is to look at Income Statements. By definition, Income Statements “report a company’s financial performance over a specific period” — which for football teams ends on August 1st of each year. For my first financial analysis, I will be looking at Inter Milan. As mentioned in my Sports Business article – where I look at the strategical, business side of things – la Beneamata is in precarious condition when it comes to their financial situation. But prior to dishing out all of the negative notes, it is important to point out everything that has been good for the Milanese club.
In terms of player trading and lowering yearly operating costs – which are mainly made up by salaries and amortization of players’ value as assets – Inter has done a sufficient job. In fact, overall, its costs have lowered by approximately €30M. In specific, this has come from a decrease in salary costs from €218M to €185M and in amortizement costs from €128M to €116M. In terms of salaries, Inter saved up notable amounts of cash by letting go of players such as Handanovic (€9M Gross), Skriniar (€11M Gross), Dalbert (€7M Gross), Gagliardini (€2,8M Gross), Dzeko (€10M Gross), Brozovic (€12M Gross), Lukaku (€20M Gross if you include cost of loan), Correa (€6.5M Gross). All of these players freed up immense space and let Football CEO Giuseppe Marotta, in collaboration with manager Simone Inzaghi, reinvest and build a competitive roster. On top of salary cost reductions, Inter also managed to cut on amortization costs. For example, €2M were saved on Correa by loaning him out to Olympique Marseille, or Alessandro Bastoni’s amortization cost was lowered as he was granted a new deal for a contract ending in 2028 — which meant that the remaining value of Bastoni as an asset is now being spread across multiple years until 2028 instead of 2024, his old deal’s end. In contrast to these positive notes, some contracts were dealt with poorly. For example, Stefano Sensi costs the club €10M roughly if you consider amortization and gross wages. Whilst I truly love the player and am happy to see him get another chance with the Nerazzurri, I’m not sure if, financially, this move makes the most sense. On top of this, players like Salcedo and Agoume weren’t offloaded — and bring in yearly costs of €3M combined. “You’re stingy, Umberto”. Easy to say when your club hasn’t had €700M of losses in the last 5 years. Every penny counts.
Now, the club has also reinvested well, and while I have gone over it in my Sports Business Article, I think it is worth mentioning smart financial moves that have happened since. Klassen, a proven veteran coming in on a free transfer, thanks to the Decreto Crescita (Tax Exemption for workers who’ve lived abroad for more than 160 days consecutively), only costs the club €2,4M. Carlos Augusto, a Serie A proven player and a profile who differs from the one of starter Federico Dimarco on the left flank, only costs the club €7M yearly between amortization and wages. Thuram, who has had a great start to the season alongside club captain Lautaro Martinez, represents significantly lower costs to what would have been if Inter chose to re-sign Romelu Lukaku, now at Roma. Overall, Inter’s yearly costs have been dealt with relatively well, but to see the full picture, it is rather important to consider that Inter’s yearly costs from last season were excessively high. In other words, it was going to be difficult to not lower costs if you considered contracts and performances of some players from the 2022-2023 season. Finally, in terms of predicting what will be done next season, I can see Darmian leaving the club – despite his stellar performances – as the Decreto Crescita will expire for him since he came back from Manchester United. On top of this, I can easily see Dimarco’s contract being renewed and Cuadrado being let go of — considering his age and potential injury risks that may come with that.
In terms of financial sanity as a business, Inter still has a lot of work to do. Whilst lowering yearly costs by €30M is an important step, Inter ultimately need to heal the club’s finances by increasing the value of the club. How does one do this? It needs to start operating at a profit, and can do so by cutting costs and with a strong player trading strategy. This is especially the case if we consider that Inter, year after year, finds itself in a Cash Flow Negative situation. Every bit of cash it gets, it spends. As a result, the club has to get loans and this results in various millions of € being dished out as part of interest — see Zhang’s interest payments towards OakTree Capital, worth almost €50M per year. To turn cash flow positive, as repeatedly mentioned throughout this article, needs to lower salaries and other operating activities (e.g. club operating costs such as bills, even though they won’t play a principal role in lowering those costs).
Finally, in terms of financial projections, there are a few situations that need addressing. For example, 8 players see their contracts expire in 2024, and will need renewal or will be let go. Whilst many may see that as an extremely negative choice, I would argue that as long as the fundamental core of players that make Inter are in stable, long-term contracts, the rest can be dealt with on a year-to-year basis. In fact, players like Calhanoglu, Bastoni, Barella, Lautaro, Frattesi, and Thuram are all young and on long-term contracts. This constant modernization of the team however, does carry slightly negative implications. For instance, Inter has the oldest team in the Serie A — with an average of 28.2 years. Whilst on its own, this statistic may mean nothing, it is important to consider that an aged group historically puts clubs in difficult situations. Further, in terms of increasing a club’s value, Inter isn’t likely to do so by signing old players on loop. These players, because of their age, are never going to raise their value as assets — and never be sold for capital gains. Where does this lead to? Top players having to be sold. After all, they’re the only assets the club has that are likely to appreciate in value. Plus, Inter are going to be forced to sell. €700M of operating losses and €900M of debt (which will keep increasing) require that — so don’t be surprised if you see star players like Barella or Lautaro Martinez leave the Milanese club in the upcoming seasons.