Football clubs as a business: A fallacy?

Got this rather interesting email, which makes me think that Berlu really really has lost the plot:

Sporting life

By Simon Kuper
Published: September 26 2009 03:00 | Last updated: September 26 2009 03:00


Football abandons the fantasy that it is a business

"The debt comes from players' salaries. Nothing else. It doesn't come from soccer balls," Francisco Roca, who runs the Spanish league, told the men who run football.* We all have fantasies about discovering the roomful of people who control everything. In football, that is the International Football Arena. The conference's yearly meeting in Zurich looks like the headquarters of a global conspiracy. Agents, club bosses and lobbyists gather in Swiss suburbia to chart the future of the football business. Earlier this month, sports economists gathered in a dingy Parisian office block. The two gatherings brought one stark realisation: hardly any football clubs will ever make profits. Football is abandoning the fantasy that it is a business.

The game's losses predated the recession. Egon Franck, economics professor at Zurich university, said in Paris: "In the top-flight leagues there is a financial crisis but it has nothing to do with the financial crisis. It's an inbuilt, permanent financial crisis." Premier League clubs owed a combined £3bn ($4.9bn, €3.3bn) even before recession hit. Spanish clubs owe perhaps €4bn. Each country has its own sorry tally.
*
"We must be sustainable," clubs say, parroting the new global cliché. In fact they are fantastically sustainable. Mr Roca noted Spanish clubs are always going bankrupt, but added that they never disappear. It is similar in England, where dozens of professional clubs have entered insolvency proceedings since 1992 yet only Aldershot folded, and then returned under practically the same name. Football clubs survive even when they go bust. You cannot get more sustainable than that.
*
Clubs are immortal chiefly because creditors dare not pull the plug. The clubs' brands are strong enough to cow banks and taxmen. And so clubs can incur debts without fear.
*
The recession simply clarified how hopeless the football business is. It suddenly became obvious that most clubs would never make profits. Of course, few even aspired to profits: any euro they could borrow they immediately blew on players to satisfy their media, fans and personal fantasies. Football is an arms race, not a business.
*
Debt is fine if you can repay it from future profits. However, few football clubs have future profits. Much of football's debt will never be repaid. So it will be written off.
*
Large chunks will be nationalised. In many countries football lives off state support. The prime example is Argentina, whose government last month bailed out the clubs by "buying" football's television rights for almost triple their previous price. In Italy and England, governments have quietly accepted that many clubs will never pay their back taxes. Even Dutch city councils bail out profligate clubs. Taxpayers are therefore funding footballers' Porsches.

Thankfully, saving football is cheap. This is a piddling industry. Total European professional football revenues for the 2007-08 season were €14.6bn, a quarter of Tesco's.
*
As for the banks that lent to football, they will take not a haircut but a number-one shave. That is their punishment for having imagined this was a business. It is remarkable that Britain's Co-operative Bank handed over millions to Sheffield Wednesday.
Clubs' debts have been forgiven in certain countries before. The clubs soon run up debts again, having learnt that they cannot go bust. But next time, at least the debts will not be fed by fantasies of future profits.
*
Only two financing models now remain. The first works for about six clubs, chiefly Manchester United and Barcelona: have such a big global brand that you can generate money to pay great players. The second and rising model is the sugar daddy. Find an Arabian sheikh to buy your club as a toy.

All this means the end of football as a pretend business. The executives in Zurich are finally realising that they do not run Shell or even Lehman. At best, their clubs will one day be like local museums: community institutions whose sole financial ambition is solvency.
*

This is quite interesting, something a few people on this forum already hinted in these last few demoralizing months

Thanx Warro. There are arguments to be made for whole governments not being worried about deficits let alone football clubs.
At the end of the day though unilateral action, like supposedly Berlusconi trying to prove he can do it alone without losses is silly at best. And even if so, as if Perez is going to wake up one day and say 'look Milan spent less and won, me too from now on'

Ultimately, I think its this way:

Berlu is under unprescedented stress:

a) His wife is divorcing him, because,
b) his affairs with teenage girls/high-end prostitutes have been exposed, and
c) his kids are also pressuring him to stop "squandering" their legacy on the Milan money-pit...and
d) with the global+Italian recession still a major issue, he can't be seen to be spending "huge, Perez like funds" on the club....

So, what does he do:

He simply cuts spending (at least temporarily) reduces the wage bill (by selling Kaka, sacking Carlo) and makes a few token purchases in a bid to keep fans happy.

He has long felt that he is a master tactician, and a shrewd judge of talent, so he appoints his puppet coach (as I continue my conspiracy theory ) through whom he makes his player aquisitions, team selections and tactics, the results of which we have seen in our position in the table.

"Balancing the books" is a smoke screen, in our case and as the email above suggests, is impractical and unnecessary...

What is also surprising, in light of the ongoing crisis is that rumors of our activities on the transfer market are few and far between, which (considering he is a media magnate) could mean everything...or nothing....

Ultimately, time will tell...he brought us out of Serie B, and yet seems hell bent on taking us back.

The Emperor has no clothes, and is yet to realize he is naked.

I think he knows he is naked as he just want people to take pics of his naked body.

Great article Warro.

To me, I just think he is not spending b/c he just don't want to spend anymore. Or the most positive spin I could think of is that he wants to make Milan crap in order for his wife to not want half of Milan. THen when the divorce is finalize, he will spend Perez money to bring the best players to Milan.

Thanks for the article, Warro. This football as a business concept will only work if there are rules that apply across the board. Otherwise, we're just putting ourselves in a position of disadvantage, as we are doing now.

I too am hoping that Berlu has a Perez-type of an awakening and realizes what he has gotten us into, and get us out! Would be nice to be making bids for Messi every year, luring Kaka back, unsettling CR9, and doing all the things that so-called big clubs do, and that we, until very recently used to do.

Never thought about the "wife gets 1/2" scenario Gabriel....

Hmmmmm does make me wonder....

i)What are the divorce laws in Italy anyway?

ii)Is she actually really suing for divorce?, and if so,

iii) Does she want 1/2 of everything?...Milan is not an income generating asset after all....though on the other hand, divorce can be an illogical process...she may just want half so as to sell the 50% stake to Moratti.

NO clue, Warro.
But if Italy is like England, Canada or US. Then the wife do get half of the husband assets, can go back up to the first time the husband cheated, as long as she can prove that he was cheated or his wrongs.... Which in this case, it won't be too hard for Mrs. Berlu to do that.

But in this case, there is most probably going to be some sort of a pre-nuptial agreement. There's no way Berlu is stupid enough to get married with no agreement to "safe-guard" his money.

Well....he was stupid enuf to sell Kaka and not replace him.....

On another note, Arsenal, according to this article from TheGuardian
http://m.guardian.co.uk/?id=102202&s...-arsene-wenger
have over £80M to spend on transfers....maybe we can get a low interest loan from them?

ISn't Mrs. Berlu is also from a pretty rich family herself?

Anyhow, cant believe Arsenal have over 80Mil to spend.

Whilst i understand this email, everyone seems to be forgetting that from 2012, all football clubs under the rule of UEFA will have to spend within their means. Meaning that, if a club makes an annual turnover of say £100mil, then that is all they can use for staff wages, signings, dividend payout etc etc. It would appear that Arsenal have been seeing this coming (either due to the advanced stage of delapidation of European Football revenue/expenditure, or the current financial climate or even both) and have already safeguarded their 2012 future by making sure that they have books making more than they spend. They are paying off their debts. Maybe Berlusconi is doing the same thing? By selling Kaka and lowering the wage bill, he may be hoping that by 2012, the majority of debts will be paid off, and we can spend the money we make (which being that we have one of the biggest brand names in the world, should be ALOT), and NOT have to worry about paying off debts etc. The way i see it is, all clubs should start doing this now, becuase when UEFA's new ruling comes into effect, these clubs like Man City, Man United, Inter Milan, Real Madrid etc will be up a certain creek, with nothing but their hands to row! The way i see it is, if we sign NO players this year, and still make the Champions League positions for the next few years, ultimately it will be US that are laughing and skipping, all the way to the bank to withdraw out sizable transfer funds!

ElJaffacakeo, two things come to my mind:
1)UEFA may not even be able to carry through with this at all
2)No way UEFA or anybody else for that matter is going to 'punish' the teams that are supposedly most in trouble. ManU, to take one example, is a big reason CL is a success Europe and world wide - and therefore the reason UEFA is a success.

I really don't think this so call UEFA rule will come to action. Even if it did, I could think of a few ways to combat that right away.

1. Lets say Real and ManU are losing money and can't sign anymore. What to say that Superstar A and C will be sign by a private company B, while then private company B loan Superstar A to Real and Superstar C to ManU for free with an option to buy in two years time. Mainly b/c private company B is actually co-owned by one of the directors of ManU and Real. Can UEFA comes in and stop this transfer?

2. OR the govt in Madrid just gave out 500mil low interest loan to Real in order for them to break even. Can UEFA comes in and say no?

THose are just ideas that popped into my head, I am sure with multi million dollars lawyers, Real and any other clubs would have think of more ways to bend these so call new rules.

Personally, I don't think these rules will ever apply, as it is actually quite easy for these top teams to just band together and form a new league of their own.
IN my opinion, if UEFA do go ahead with this, instead of bringing the competitions closer, they will only make the rich richer and the poor poorer.

I agree with Rez and Gabriel to an extent...

Yet let me play devil's advocate for a minute:

Let's consider UEFA, and their suggested inability to implement the rule re financing....while they may be shooting themselves in the foot to an extent, by say excluding Real Madrid, Man U, and say, Liverpool (ok, maybe Chelski as well) they will be "winning" fans of many of the clubs, who would be operating within the proposed guidelines....Arsenal for one, say Milan for arguments sake...and others who will rush to toe the line as best as possible...would the UCL still be a valid competition without those non-compliant teams?

I suggest it would, especially if there isn't another competing league, featuring the excluded clubs....

Its a critical mass issue at the end of the day...will there be enough clubs toeing the line, or will there be a mass-exodus to the break-away league?

That said, let's look on the power UEFA wields: suppose clubs wish to break away and form their own league as a result....and UEFA then goes to FIFA and requests that those players participating in the break-away league be banned from FIFA/UEFA competitions...what would the players do?

They wouldn't be able to play for their countries in the World Cup for example, yet they would still be paid by the clubs....tough call...that could go either way...

What would the FA's of the countries, say the English, French, Spanish and Italian FAs do? Would they simply field teams of players playing for the compliant clubs? At the risk of being over-run by other countries, say Argentina, Brazil, and even relative "minnows" like the US (bad example, but u get the idea) & African countries?

I guess ultimately the clubs wouldn't be in so strong a position...and the assumption here is that FIFA would cooperate with UEFA....which I do see them doing, as UEFA remains a major "player" (no pun intended)in global football...

Platini has already made major changes to the football landscape, and the disbanding of the G-14 was a major victory for UEFA in the power struggle between them and the rich clubs.

As such, I think that the clubs will comply, and the loopholes are easily closed...banning 3rd party ownership, for one, and as the rule already states, limiting clubs aquisitions to within their earnings prohibits them from taking out loans to purchase players...

And ultimately, UEFA has the resources to hire the same quality of legal expertise as the clubs can....so....who knows, I guess we all have to wait and see what, if anything, comes from the purported rule changes.