Cure or Curse: Socio Club Ownerships in Spanish La Liga

Khalid KhanCorrespondent IJune 11, 2010

MADRID, SPAIN - APRIL 16: (L-R) Florentino Perez, president of Real Madrid, Raul Gonzalez of Real Madrid, Johan Cruyff, honorary president of Barcelona, Joan Laporta, president of Barcelona, Alberto Ruiz Gallardon, mayor of Madrid, Francisco Gento, former player of Real Madrid, Angel Maria Villar, vice president of UEFA and Emilio Butragueno, Champions League final match ambassador pose during the UEFA Champions League trophy handover ceremony at Palacio de Cibeles on April 16, 2010 in Madrid, Spain. (Photo by Angel Martinez/Getty Images)
Angel Martinez/Getty Images

Some believe highly of socio ownership, and some think otherwise but, like many things and choices in life, it has its positives and negatives.

Spain’s Sports Law, Ley 10/1990 del Deporte, through its Article 19.1 makes it mandatory for professional soccer clubs to become privately-owned S.A.D.s/PLCs from June 1992 for the 1992-93 season of Primera División.

However, four exceptions were allowed, based on Seventh Additional Provision of the law which permitted maintenance of existing legal organizational structure, if that club’s accounts were in the black for the last five years running starting from 1985-1986 season, in audits performed by LFP (Liga de Fútbol Profesional) and operations as member-owned non-profit sports associations.

Four clubs exempted were Real Madrid CF, FC Barcelona, Athletic Club Bilbao, and Club Atlético Osasuna with former three having special cultural and nationalistic significance for the ethnic groups they primarily draw support from.

This exception has both its pros and cons; opponents and proponents.

Its advocates claim that it develops, fosters and perpetuates close social and economic bonds with the community a club is based in and that a democratically elected president being more accountable lessens the likelihood of indulging in financial mismanagement and fiscal irresponsibility ensuring no debt overburden, and imprudent or exuberant overspending. Members feel involved, and their concerns addressed in such an enterprise enhancing its social value.

Being a non-profit organization, socios get cheaper season tickets among many benefits, banks provide low-interest loans, and other low revenue generating sports like basketball gets subsidized.

Unlike a PLC which dishes out dividends to shareholders or interests on investment to private owner(s) who may also siphon off profits to his/her other business enterprises, all profits/budget surpluses stay within the club, making a more stable, vibrant and financially viable business entity.

But there is a dark side to that superficial luster, both financially and politically.

Socio-owned La Liga clubs cannot raise capital through public/private investment or floatation of shares on the stock market to fund player purchases and club operations, and in the end are reliant on the income solely generated by the club’s activities.

There is an innate flaw in that model because due to lack of investor/shareholder scrutiny, it is nearly impossible to ensure financial fair practices and fiscal responsibilities. Accusations and allegations of lacking financial transparency and nepotism fly around in campaigns.

Politics and Elections
The very boon of socio model having roots in tradition and culture is also its bane as it gives it its inherent institutional instability so vital for a sporting organization’s achievement of long-term health and objectives.

During presidential elections by the contestants and in re-election campaigns by the incumbents, power-hungry candidates make big promises of signing star players to lure voters and ensure victory; populist, even nationalist sentiments are invoked and policies pledged.

Often all this serves as a veil to fuel personal ambitions, hide sporting inexperience, and to sling mud on the incumbent.

Sitting Real Madrid president Florentino Pérez first won in 2000 partly by promising to bring Luís Figo. Former Real Madrid president Ramón Calderón came on the back of lofty promises of big player signings and brought disrepute to the club due to alleged illegal, unethical and immoral advances toward then Manchester United’s star winger Cristiano Ronaldo and a secret pre-agreement worth €30 million with the player.

Current Barça president Joan Laporta also promised to sign David Beckham and end financial mismanagement under then president Joan Gaspart. Marc Ingla, a presidential candidate for June 13 elections, has also talked about his “dream” of unveiling Arsenal’s Cesc Fàbregas.

Osasuna's current president José Francisco Izco Ilundáin won by promising Javier Aguirre as coach in 2002.

Throwing promises of signing big players may attract voters but it damages relations with other clubs, ensuing controversies, conflicts, friction, antagonism, an open war of words and the like, which consequentially hurts the club’s image.

Presidents make reckless, impetuous decisions to make or leave their mark, to establish a legacy, or to release the pressure of making socios happy.

Socio model does provide foundation for a democratically elected presidency.

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However, after elections are held every four years, effectively all socio control over the club’s policies ceases to exist and the president, in practice, becomes a monarch, even an authoritarian ruler if Real Madrid (or maybe Barcelona under Joan Laporta) is any example.

Socios have practically no influence on club’s policy, their inability to block/prevent wasteful spending in their name, and debt accumulation speaks volumes about the inclusive democracy.

Socio has only one vote and apart from approval of club’s annual budget and laws in General Assembly (through elected representatives) no say in decision making on player salaries structure, player purchase appropriations and no shares like PLC model, making administration less accountable.

Can we really call it a SOCIO OWNERSHIP when power is concentrated in the presidency?

Additionally, the Seventh Additional Provision of Ley 10/1990 del Deporte regarding a bank guarantee of 15 percent of club’s budget expenditure apparently seems to favor elitism when it is there to prevent financial mismanagement.

This provision implicitly strikes at the notion of open and representative democratic process to give equal opportunity to socios and makes it impossible for them to contest elections because they cannot ensure such guarantee to become eligible for presidential election, which highlights the inherent contradictions and conflicts to this model.

That is also where Real Madrid becomes elitist.  At Real Madrid a candidate has to submit that guarantee before contesting the presidency whereas at FC Barcelona it is only to be submitted if and when required by the club as provisioned in Royal Decree 1251/1999 (Real Decreto 1251/1999) if the club’s income is 15 percent or in excess of that for a given year.  This applies to Real Madrid as well.

Barcelona’s socios are comparatively more active than Real Madrid's.   They are more involved and participative while the Madridistas' wrath falls more on players and coaches rather than faulty administration.

Local newspapers and media outlets are allegedly said to have connections with the club regimes and in return for inside stories also help spread rumors and false stories about existing players, targeted players and coaches. Such perceived or real collusions produce nothing more than a yellow journalism and media manipulation.

Middle Ground?
German Bundesliga has found a solution between socio ownership and public/private ownership by developing 50+1 rule giving majority of club shares to the fans while the rest can be purchased by investors. This model gives supporters a direct involvement in how the club is run and financially managed because while fans are shareholders in the club, it is open to outside investments as well.

Real and Barça have reportedly considered becoming PLCs but nothing came out it. Such a move, if ever made, will put potential investors on alert because both are huge brands, have marketability, large global fan base and assets making them very attractive.

Last year false rumors put Manchester City’s owner Sheikh Mansour Bin Zayed Al Nahyan as a potential buyer of Real Madrid though such a move toward a change in corporate identity would have required the capital club to change its constitution and would have been very controversial and bitterly-opposed, requiring socios' voting on the issue in a referendum.

No business or political model is ever perfect or without flaws but based on experience, will and knowledge informed decisions are made and adhered to or changed when the evidence reflects a counter-productive model or suggests contrary results. Same goes for debate on benefits of a socio model or a public limited corporation.

Should Spanish clubs and fans need/have to learn anything from other ownership models prevalent in European soccer or maybe go for a hybrid model used in the Bundesliga?

These are the questions that may need answers if full accountability for bad sporting and financial management is a goal.

Has socio model lost some of its appeal and utility? Will fans never agree to or accept losing that romanticism, that mystique and that special magic of socio ownership? Apparently, not a chance!


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