Soccer’s net losses - Macleans.ca
 

Soccer’s net losses

European leagues are where stars are made, but debt problems are pushing pro soccer to the brink


 

Isac Zagury, former chief financial officer with Aracruz Celulose SA (Photo by Douglas Engle/Bloomberg via Getty Images)

Europe is the centre of the soccer universe, and for good reason. The continent is home to the game’s most prestigious clubs, whose rosters are stocked with the best players on earth. If the World Cup is a showcase for the game’s stars, this is their proving ground. Yet European soccer is in trouble. Reckless spending habits and a winning-at-all-costs mentality has created a financial crisis that has reached its breaking point.

A report released earlier this year by the Union of European Football Associations (UEFA), the controlling body of European soccer, found that more than half of its top clubs reported operating losses for 2007-2008, and together carried a total debt load of nearly $10 billion. Fifty-six per cent of that amount was traced to the 18 teams that play in the English Premier League (EPL). Manchester United and Chelsea F.C., two of the league’s most successful outfits, both have debts in excess of $1 billion. West Ham United, which finished near the bottom of the EPL (and was recently bought by British pornographic magazine publisher David Sullivan and his associate David Gold), has debts in excess of $170 million.

World Cup 2010 SpecialClubs often rely on the subsidies of their billionaire owners to keep them afloat, some of whom have a rather laissez-faire approach to money management. Manchester United, for example, was bought by American sports mogul Malcolm Glazer for more than $1.2 billion in 2006 with largely borrowed money, including $210 million in loans from some 20 high-risk investors.

Borrowing vast sums of money is deemed a necessity to acquire star players and field a contending team. That in turn helps owners negotiate lucrative broadcast deals and increases their chances of generating large revenues from ticket and merchandise sales. But according to the UEFA, teams end up spending far more than they earn. In actual dollar terms, the 732 European clubs licensed by the UEFA spent $16.2 billion in 2007-2008 and generated just $15.3 billion in revenues.

In Spain’s La Liga is a prime example of how overspending by a few elite teams can create a windfall of debt for an entire league. According to a new study published by a professor at the University of Barcelona, Spain’s 20 La Liga clubs had combined debts of $4.6 billion in 2008-2009. Only Real Madrid and Barcelona, the world’s two richest clubs, turn a profit. That’s thanks in large part to television deals that enable them to rake in half of their estimated $730-million income. The remaining 18 teams, who have combined to win only four of the past 20 Spanish league titles, went into debt in a desperate attempt to remain competitive.

The league’s poorer teams have repeatedly pushed for some form of revenue sharing (a practice found in other pro sports leagues, like the National Football League). But Real Madrid and Barcelona argue that would make them less competitive and unable to pay the wages needed to attract top talent.

As bad as things are in Spain and England, the situation is worse in Italy. Just a decade ago, the Serie A was Europe’s greatest league. Today it is plagued by corruption, crowd violence and a debt of $2.5 billion. Yet unlike the deep-pocketed billionaire owners of the EPL, the Serie A’s tainted image has kept investors away. Clubs are being forced to put some of their best players on the market for financial compensation.

To save leagues like the Serie A from falling into a financial abyss, the UEFA is moving forward with an ambitious “Financial Fair Play” initiative that will require clubs to break even by 2012. Approved just last week, clubs will be forced to spend only what they earn from soccer-related revenue. Big cash injections from wealthy benefactors will be restricted and teams will not be permitted to carry overdue payments toward other clubs, employees or tax authorities. If they break any of the rules, they could be banished from continent-wide tournaments. As severe as these regulations sound, however, parity on the playing field is not guaranteed. Rich teams can still spend whatever they earn (considerably more than less successful teams), and if history is any indication, they will surely spend every last dime.

(Photo by Douglas Engle/Bloomberg via Getty Images)

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Soccer’s net losses

  1. American owners should be banned from owning teams in the premiership. They're ruining the league.

  2. Surprised there was no mention of Germany's Bundesliga, which boasts highest average attendance, lowest average ticket prices, and its relatively strong financial health.. and Bayern Muich was in the Champs League final this year. They lost, but still.. probably preferable to billions in debt…
    http://goal.blogs.nytimes.com/2010/02/08/bundesli

  3. Right, its all the Americans fault. 100 million plus contracts have nothing to do with it.

  4. Serie A is “plagued by corruption”? Wow. Care to offer some evidence of that? I’m sure I’m not the only one who would be interested in what you’ve got, particularly since as far everyone but you knows, there’s been no proven issues since 2006. I daresay what’s kept investors away is more the efforts of owners to sell only to other Italians more than any fears by investors — Middle Eastern and American groups both expressed significant interested in Italian teams last season but had their bids rejected.

  5. The poor Serie A…it was the best. At least Inter won!

  6. Well, I see the word "alleged" in there, Fabio, did I miss the conclusion of the investigation wherein the allegations were confirmed?

    I'm in no way saying Serie A is a perfect league — far, far from it — but to described it as "plagued by corruption" based on a murky past and one allegation just strikes me as facile and disingenuous.

  7. Ownership of a sports franchise (any sport) is typically a "vanity" project for multi-millionaires and billionaires. For the most part, they've made their money elsewhere, and are still doing so. Prudent financial management of the sports franchise is subsequently less important to them, and it shows. I would be very surprised to see ANY owner actually being dependent on profit income from his(very rarely HER) team.

    The goal is to increase one's profile, social status, and hob-nob with superstars, NOT turn a profit! Ideally, they want to break even, but even losses can be applied against taxes owing on more profitable ventures.

  8. There was indeed corruption back in 2006 in Serie A. There are also "alleged" cases of corruption recently. So yes the writer is inaccurate but even still, investors would still prefer EPL, La Liga over Serie A. And Emily, Middle Eastern and American groups both expressed significant interested in Italian teams last season but had their bids rejected? Care to offer some evidence of that?