Why the Current Economics of Football Cannot Be Maintained

Max TowleAnalyst IMay 16, 2013

KUALA LUMPUR, MALAYSIA - MAY 02:  Michel Platini UEFA President arrives prior to the 2013 AFC Congress at the Mandarin Oriental Hotel on May 2, 2013 in Kuala Lumpur, Malaysia.  (Photo by Stanley Chou/Getty Images)
Stanley Chou/Getty Images

It is a fashionable thing to decry the steady rising of player wages, transfer fees, agent fees and sponsorship deals in world football, but for good reason.

With the sport being the most globally marketable, there is both competition to win on the pitch and to make the most money off of it.

The greed is inevitable—there are owners and officials in the game who have pushed the boundaries of economic decency to unparalleled levels.

Historic clubs are facing crisis having been saddled in debt and run into the ground by poor financial management from the top.

Commercialism has taken a hold of the game with an iron grip.

The impeding introduction of Financial Fair Play—restrictions imposed by UEFA on European clubs—is designed to counter this.

Ideally, FFP will level the playing field in relation to reckless and extravagant spending. It will hope to bring financial balance to a sport in which countless clubs spend more than they earn.

This article will analyse FFP, the current state of world football and look at the future of the game from a financial perspective.

The Prologue to FFP

UEFA are not shy when it comes to pointing the finger of blame at certain clubs.

Billionaire businessmen have come from nowhere to use football clubs as their own plaything. Some have been driven by a genuine love of the game, others by profit. Most have failed in this latter pursuit.

Less than a year ago, UEFA president Michel Platini spoke about this increasing trend and the importance of Financial Fair Play (via The Guardian):

It can happen at Malaga, it has happened at Portsmouth, it can happen everywhere. Many people are coming into the game to make business, to make popularity... some actually love football, but remember Uefa are there to protect [the clubs], not kill them.

I just want clubs to spend money they have, not what they don't have. I've spoken to football directors, chairmen and owners from all over the world, I've spoken to Manchester City's owners in Abu Dhabi, and everybody has given their commitment to this plan.

We have put the structure in place to implement these rules. If clubs do not respect the rules, they will get into difficulty, whether they are from France, from Italy, from England, from Georgia...

His words are a veiled criticism of the way the business oligarchs of football conduct their business.

The most notable case of a foreign, mega-rich owner delving into the world of football without any real experience within the game is in Roman Abramovich's purchase of Chelsea Football Club in 2003.

Recalling the Russian's takeover, former chief executive of the club Trevor Birch says the deal took only 10 minutes to complete (via The Standard).

"[Abramovich] said, ‘We’re going to run it as a business, break even and be the biggest club.’ How ironic given the hundreds of millions in losses. I suggested he spent £20 million on players. He spent £140 million in six weeks."

This extraordinary influx of capital shook the game to its core; valuations for players across Europe ballooned.

In his first summer at Stamford Bridge, Abramovich spent £17 million on Damien Duff, an honest but unspectacular winger from Blackburn, and £15 million on Juan Sebastien Veron, a player who subsequently made only 14 appearances for Chelsea.

In his first nine years, the Russian spent close to £2 billion on transfer fees and players alone. To date, he is also nearing £100 million total spent purely on severance packets for fired managers (via The Sun).

In the 2011/12 season, Chelsea Football Club made a loss of £194.8 million (via The Sun).

There are positives to be said about Abramovich's reign—the club has won more trophies in the last 10 years than in the hundred or so before. He has not disappeared and left Stamford Bridge in ruins as many originally feared he would.

The argument can be made that his money is his to spend, but as a financial and business model, the club is fundamentally flawed.

Manchester City is another example of impractical spending by owners unfamiliar to the sport.

According to a report in The Telegraph last year:

Between 2008, when Abu-Dhabi-based oil magnate Sheikh Mansour bin Zayed Al-Nahyan bought [Manchester City], and the end of last season, the club’s total cash outlay was £930.4 million, of which only £365.3 million was generated from their own operations.

The remainder—£565.1 million—had to be supplied by Mansour, the club’s billionaire benefactor.

At Malaga in Spain, Sheikh Abdullah Al Thani of the Qatari royal family purchased a club struggling with debt in 2010.

Top players were bought, while young talents were promoted through the revamped youth system—the side initially thrived, finishing in the top four of La Liga and qualifying for a Champions League place.

But out of nowhere, word was received from the top that many high-profile names had to be sold.

According to Fox Sports:

Players weren’t being paid on time and hadn’t been for months. Teams that had sold players to Malaga claimed transfer bills hadn’t been settled.

Plus, the club was behind on taxes and rumors swirled. Had Al Thani lost interest? Was he looking for a buyer? Was he really as rich as they said he was? Was he broke?

Whatever the cause, the club president had cut off the cash stream without explanation. Not even a clue.

Malaga are the prime example of the potential perils of a club being completely reliant on one owner or a family.

There are other examples too of clubs spending far more than their income, clubs that inspired Platini and his UEFA team to impose the FFP regulations.

There is Queens Park Rangers—a team facing financial ruin thanks to careless overspending, even in the face of possible relegation.

When the results, both on the scoresheet and in the balance books, don't match up, it is the fans who have to suffer through the turbulence.

Where We Currently Stand

An article in The New York Times earlier this year proclaimed Germany's Bundesliga the best-run league in football.

The league boasted revenue totaling "a record $2.7 billion across the 18 clubs [last year]. It is a 7.2 percent increase from the previous year and double the $1.33 billion mark reached only 10 years ago."

Not only are the top German clubs—Borussia Dortmund and Bayern Munich—currently playing the best football, their financial health is also excellent.

The predominant reason for this is the league's non-independence in TV deals, unlike the lagging La Liga in Spain and Serie A in Italy. Its advertising revenue also blitzes its continental rivals.

According to the Daily Mail, Bayern—Germany's most successful and well-supported club—have season tickets available to fans for as little as £104. The cheapest at Arsenal is currently £985.

Bayern president Uli Hoeness has a refreshing take on this disparity:

We could charge more than £104. Let's say we charged £300. We'd get £2 million more in income but what's £2 million to us?

We do not think the fans are like cows, who you milk. Football has got to be for everybody. That's the biggest difference between us and England.

In Spain, Deportivo La Coruna are the latest La Liga club to fall into financial strife.

Barcelona and Real Madrid are so far ahead of the pack financially that no one has any hope of catching up. It is a two-club monopoly fostered by clubs having to sell television rights on an individual basis.

The worldwide marketability of say, Real Sociedad or Espanyol, is nothing compared to the popularity of the global giants.

At the Soccerex European Forum on Thursday, La Liga chief executive Francisco Roca, admitted that a change in the way the league is operated is necessary (via The Guardian):

We need to get much better with the control of team's finances. We need to conquer the issue of individual television rights. It is not advantageous for the Spanish league to sell its rights individually and something we aim to solve over the next two or three years is to sell them collectively.

We have two 'Super-Liga' teams dominating and with them making over 50% of the revenue we have a big problem to solve. We started to work on that three or four years ago. We have to solve the distribution system; 35 teams have signed a contract to redistribute the money.

Barcelona and Real combined for a whopping 54 percent of total league revenue last season.

In the Premier League, The Guardian's financial report claims that wage bills (for both players and employees) have risen by roughly £1 billion a year over the past three years.

Earlier this month, it was revealed that Manchester United had posted a record third-quarter turnover of £91.7 million, but the club's total debt, sourced from its American owners the Glazer family, still stands at £367.6 million (via The Guardian).

In Serie A, there is a notable disparity between the top clubs and the chasing pack.

AC Milan's total wage bill for 2012 was over £100 million. The combined wage bills of Pescara, Chievo Verona, Cagliari, Catania, Siena and Parma is less than this sum (via Football Italia).

Also worth mentioning is the often obscene amount of money clubs spend on agents' fees, specifically in transfer deals.

To use one example, Manchester City spent over £10 million on players' representatives last year. In the Premier League alone, total spending on agents' fees was £77 million, up over £5 million from the previous 12 months (via BBC).

Earlier this year, Gary Neville spoke of the growing influence of a group unnecessary to the sport as a whole (via Daily Mail):

My views about agents are fairly well known. I’ve criticised them before. But I feel their influence in recent years has grown to a level that means football needs to act to address the situation and find ways to curb their influence.

It concerns me that there are agents who will hang around youth football matches, offering cash inducements to parents and promises to boys to gain an influence over them.

It seems Neville is not alone in his sentiment. FIFA aims to "restrict agents' business by preparing rules that will limit third-party investments in players' transfer rights" in the coming years (via Fox Sports).

Financial Fair Play and the Future

Before we begin analysing the effect Financial Fair Play might have on the game, it may be worth breaking down exactly what the regulations are:

  • Regulations come into effect on June 1, this year.
  • Europe's top clubs have exactly three years to "break even."
  • Between 2014 and 2017, clubs will have to record losses of no more than £26.3 million.
  • Owners cannot reduce club debt from their own wealth.
  • There will be spending restrictions for clubs for the first time.
  • If a club does not meet these rules, it will be excluded from Champions League competition.

At its base level, UEFA's FFP intends to level the playing field across the continent.

It will curb the out-of-control spending of the financial juggernauts, encouraging clubs to invest money in youth and training facilities.

It is a necessary game-changer—we may not see it in full-swing for at least three years, but better late than never.

For FFP to have its desired effect, it will need to be enforced evenly across Europe's biggest leagues. Punishments will have to be metered out—if a club violates the rules, there can be no leeway given. 

If it has had its critics, many have been from the big clubs who fear being the most adversely affected.

Former Manchester City boss Roberto Mancini recently hit out at FFP, saying "I do not agree. If I am a rich man, I want to spend all my money for my team. I don't agree with this in general" (via Daily Mail).

The Italian boss has a point, but he is not considering the bigger picture.

If City spend inflated amounts on transfer fees, player contracts and agents' fees, they are setting a dangerous precedent, as well as contributing to the inflation of the market as a whole.

New Manchester United boss David Moyes views FFP from a different angle (via Daily Mail).

The Scotsman believes the regulations could adversely affect the smaller clubs who have to place more of a focus on marketing:

There is more emphasis on the club doing its job well in terms of the marketing and commercial side—selling more season tickets and corporate boxes. If you are a club that is good at that, FFP will help you.

If you are a smaller club, with poorer attendances, then it will affect you. It could make the rich richer and the poor poorer, increasing the gulf in the Premier League.

It has been brought in with good intentions but we could end up concluding that it is restricting trading. For example, if you want to buy a football club and spend money, then it would be more difficult to do that now.

AC Milan CEO Adriano Galliani believes FFP will have the most adverse effect on clubs in Serie A: "Financial fair play hurts Italy. There will no longer be the patrons who can intervene" (via Goal.com).

Such negative reactions can be expected, but things must change now before they spiral completely out of control.

In five years' time, the landscape of the footballing world will likely not see much change. The same clubs—Manchester United, Real Madrid, Bayern Munich, Barcelona etc.—will still be dominant forces.

But they and the freewheeling, free-spending clubs will be held to account—and that is the most important thing.

When a relegation-threatened team like QPR grants a player a weekly wage of close to £100,000 a week, and then faces financial ruin because of it, it is clear that many higher powers in the game must be saved from themselves (via The Telegraph).

These economics are unsustainable and damaging across the game, not just in Britain.

This article does not suggest that agents should be eradicated from football altogether, that salary caps should be introduced, or that mega-rich owners should not purchase the club of their choice.

Rather, that there should be guidelines and restrictions imposed across the board.

We may not like to think of it, but a football club is a business, and should be held to account as a sustainable model.

What do you think about the current financial state of world football? Is FFP a good idea?

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