Explaining Lyon's decline

Last week the DNCG, the French football financial watchdog, bared its teeth and confirmed the relegation of Olympique Lyonnais to Ligue 2.

On the one hand, this was a huge shock, given that Lyon are one of the most storied clubs in France; on the other hand, given the various financial issues that have arisen since American businessman John Textor took over the club in December 2022, it did not come completely out of the blue.

Lyon’s plight seems almost unthinkable, when you consider that they won seven consecutive league titles in the early 2000s. Those heady heights are a distant memory these days, but they still finished sixth in Ligue 1 in the last two seasons.

When Textor bought a controlling stake in Lyon in December 2022 at a valuation of €884m, this was the largest takeover in the history of French football, though it was largely funded by “other people’s money”, as provided by US investment firms Ares Management and Iconic Sports Management. His share is now up to around 88%.

Lyon have not helped themselves with a revolving door approach to management, as they have employed no fewer than nine coaches in the last seven years.

On the face of it, Lyon did well in 2023/24 to significantly reduce their pre-tax loss from €99m to €8m, which was their best result for five years. Many French clubs lost a lot more, especially PSG €56m, Marseille €38m and Nice €27m.  However, this still represents a decline, as Lyon had reported pre-tax profits four years in a row before COVID struck. The picture has dramatically changed since then with the club posting five consecutive losses.

Lyon have raised funds by divesting all or part of certain non-core assets, though Textor said this was less about the cash, but more because he wanted to “refocus on men’s football”. His view was that the group had been “way too heavy on physical assets”.

• Others might consider that this is effectively Lyon “selling the family silver”, as this strategy will reduce their revenue going forward, after making three major asset sales: 100% of the LDLC Arena, a 16,000 capacity multi-purpose venue, used to host music and sporting events was sold to Holnest, a family office owned by Aulas, for €51m.
• A substantial share of OL Féminin was sold to Michelle Kang, split between 53% in 2023/24 and a further 32% in 2024/25, leaving the club with just 15%. Other commercial income was boosted by €27m for the licensing rights sale, while the club received another €11m last season.
• 97% of the share capital of OL Reign, the NWSL team, was sold to a group including the Seattle Sounders and the global investment company Carlyle for €54m.

There are even fears that Lyon’s famous academy, an important part of the club’s identity and business model, could be next for the chopping block.

Lyon’s broadcasting income has declined by nearly two-thirds from the €122m peak in 2018/19 to just €45m, as they have been hit by a double whammy.   First, like all French clubs, they have been badly impacted by the deterioration in TV rights; second, their failure to qualify for the Champions League has been disastrous.

Lyon’s failure to qualify for the Champions League since 2019/20, when they got as far as the semi-finals, has obviously hurt their finances. In fact, they were out of Europe altogether in three of the five seasons that followed that fine achievement.  This means that they have only received €40m TV money from Europe in the last five years, compared to €263m in the preceding 5-year period.

There has been steep growth in Lyon’s wage bill, which has reached record levels for the club, rising 20% from €134m in 2020/21 to €162m in 2023/24.  Lyon had the second highest wages in France, so the extent of their under-performance is crystal clear.

Player trading

Player trading has been a very important element of Lyon’s business model, as they have made significant profits from player sales, including more than half a billion Euros in the last seven seasons.  Their strategy has been based on “a leading academy, recruitment of young talent and the ability to unlock their sporting and economic potential.”

However, it’s worth noting that they have done a little less well recently, as the €252m profit in the last four years was lower than the £319m generated in the preceding 4-year period, partly due to COVID deflating the transfer market.

There’s no doubt that Lyon’s player trading model has been pretty impressive, but it could have been even better, as they lost a few players on free transfers, including Houssem Aouar to Roma, Moussa Dembélé to Al-Ettifaq and Memphis Depay to Barcelona, when they had attracted decent offers in the past.  If Lyon’s demotion is confirmed, it seems likely that a few of their more talented players will be snapped up by other clubs, including Fofana, Mikautadze, Tolisso, Caleta-Car, Perri and Nuamah.

Debt

Lyon’s gross financial debt more than doubled in the four years between 2020 and 2024, rising from €227m to €505m. This was mainly in the form of €424m external debt, though there was also €81m owed to the owners.   Largely as a result of their investment in the new stadium and Arena, Lyon’s €505m gross debt was by far the highest in France, well ahead of PSG €312m, Monaco €213m, Marseille €130m and Rennes €110m.

Since these accounts, Lyon have refinanced the majority of its debt for a total of €395m with a group of leading global institutional investors, mainly located in the US, enabling the club to repay its long-term stadium debt, its Revolving Credit Facility and the PGE loans taken out during the COVID years. The new debt was made up of €320m repayable over 20 years and €75m maturing in five years.

As a result of the refinancing and the repayment of the loan to the Brazilian subsidiary, gross debt fell to €446m as at 31 December 2024, though net debt actually increased from €376m to €396m, as the cash balance dropped from €129m to €50m.

Lyon have invested substantial sums in infrastructure, especially the new stadium, which cost around €600m, though €180m was provided by public money with another €60m from the city of Lyon. That meant that Lyon still had to find €360m, a significant driver for the increase in bank loans.

In fairness to Textor, Eagle Football have dug deep, providing around €290m of funding to the club in the form of loans and equity, including €130m in the first nine months of the 2024/25 season.

Like all other clubs in France, Lyon have had to battle with the financial dominance of PSG, whose revenue and wages are so much higher than their domestic challengers. Furthermore, the gap is likely to widen, due to the TV rights debacle.

It’s unlikely that Textor’s blunt, “call a spade a spade” attitude has done him (or Lyon) any favours. Anyone that has done business in France will know that there is an etiquette to follow, assuming that you want the best chance of success.

This might be anathema to a man like Textor, but he has made enemies left, right and centre, so even when he makes good points, he tends to be ignored. For example, a rather less confrontational approach to the DNCG might have paid dividends.

It never rains, but it pours, as Textor has also been threatened with legal action by some of the other investors that had backed his initial takeover.

According to the Financial Times, Iconic Sports Management, the investment vehicle of Jamie Dinan, the co-owner of the Milwaukee Bucks NBA franchise, is claiming that Textor is obliged to repurchase $93m of shares.

The DNCG is in an invidious position of being “damned if they do, damned if they don’t”. Accused of being too slow in the past, especially with Bordeaux, who are now languishing in Championnat National 2, they would not want to make the same mistake with Lyon.

That said, it still seems unthinkable that events have got this far. As the club itself said, “We sincerely do not understand how one administrative decision could relegate such a great French club.”