Wednesday, May 16, 2012

Are European Football Clubs Best Considered as Quasi-Public Entities?

The Economist has a discussion of finances in football in which it highlights the superior performance of the German Bundesliga:
Football matches pitting English against German teams are inevitably depicted as a clash between Anglo-Saxon resolve and Teutonic efficiency. But the contrast between England’s Chelsea and Germany’s Bayern Munich (pictured), set to meet on May 19th in the Champions League final, is stronger off the pitch than on it. Bankrolled by Roman Abramovich, a Russian billionaire, Chelsea has spent millions in its determination to win Europe’s most prestigious club competition, racking up losses of nearly £68m ($108m) last financial year. By comparison, Bayern Munich, which made a profit of €1.3m ($1.65m) over the same period, is a model of prudence.
The figure at the top of this post comes from a 2010 analysis by AT Kearney (here in PDF) cited in the Economist article which argues that if normal business standards were applied to European football leagues, the English and Spanish leagues would be at risk of going out of business in 2 years.

Of course, as Simon Kuper frequently reminds us, football is far from a normal business:
If football clubs really did collapse beneath their debts, there would now be almost no football clubs left. “We must be sustainable,” clubs say nowadays, parroting the latest business cliché. In fact they are fantastically sustainable. They survive even when they go bust. You can’t get more sustainable than that.
The Swiss Ramble recently took a detailed look at the finances of Bayern Munich, which has an impressive run of 19 consecutive years of profitability, a streak sure to continue this year. But as The Economist notes, it is not just economic success at the top, but throughout the league where the Bundesliga shines.

One aspect of this success is tight regulation by and subsidy from government:
Thanks to the €1.4 billion investment German authorities made in expanding stadiums for the 2006 World Cup, Bundesliga clubs have been able to increase their matchday revenues. In England, where big clubs own their own facilities, there is no comparable public-sector assistance. The decentralisation of the German economy has also helped clubs throughout the country to form commercial partnerships. With a shortage of strong businesses outside Paris, Madrid and Barcelona, most clubs in France and Spain have limited local-sponsorship opportunities.

Not everyone is keen on cost controls, either. Leagues in both Germany and France demand oversight of financial accounts to make sure clubs are not being reckless. Authorities can prohibit transfer activity or relegate teams as punishment for breaching regulation. Mr Hembert says the system in both leagues is more stringent than the financial fair play rules proposed by FIFA, football’s governing body, designed to curb spending by clubs competing in European competitions from next year. Yet FIFA’s scheme would run into serious opposition in the Premiership, where there is less appetite for regulation, despite Portsmouth’s bankruptcy. Even in the Bundesliga, there is resistance to the rule that prevents one person from owning more than 49% of a club. That restriction is intended as a safeguard against ruinous megalomaniacs, but Hannover 96, a Bundesliga side, believes it curtails investment and stops the league from realising its full potential.
Should football clubs be thought of less as businesses and more as quasi-public entities?  The continuing success and growth of the Bundesliga suggests that the answer is yes.


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