May 22, 2013
Financial discipline in Europe
Different approach to Formula One needed
That the European Football Union (UEFA) was serious in imposing strict financial rules on clubs — which many thought could not be done — was shown the other day when it withheld prize money from 23 clubs participating in European club competitions because of debts to other clubs, taxes and their own employees. It also suspended three Turkish clubs from European inter-club competitions. UEFA will not allow clubs to have debts.
That is the first step, but it would, of course, not be very effective if the 53 affiliated countries do not impose some kind of financial discipline in their own leagues. This is long overdue as club debts have continued to mount, but some countries are making a move.
The English Premier League is considering rules to prevent an imminent collapse of some of their clubs and whether to adopt UEFA’s rules. They will also consider determining a maximum percentage of the club’s income that can be spent on players’ salaries — something which has often been suggested in this column and is successfully carried out in US professional leagues. It would also level the playing field to some extent, although big clubs would still be able to pay higher salaries as they have a higher income. England’s League already punishes clubs with the loss of points if they have to file for bankruptcy protection.
Manchester United is listed as the richest club in the world and they have a huge income — even from a sponsor for their training shirt. They (like Barcelona) received over 72 million dollars just for reaching the European Champions League last season. They were able to reduce their debt which, however, still stood at 574 million dollars at the end of last season.
All this is in spite of the huge TV income of English Premier League clubs. Champions Manchester City received almost 100 million dollars from broadcasting rights last season, but unlike in some other countries, half the rights are shared equally among the 20 clubs. Each club received 52 million plus 1,2 million for each place in the final standings — example: first-placed Manchester City received 20 times the amount. Yet, ever increasing players salaries are rising more.
Whether finally this increased awareness of clubs’ financial situation in Europe has anything to do with the region’s economic problems or not, it is high time they get to grips with the situation. In Spain, troubled soccer clubs are finally reducing their debts, mostly to tax authorities. Its first and second division clubs are reported to be owing 979 million dollars in taxes and another 783 million for social services. Add on what is owed to players who recently went on strike to claim 72 million dollars in back wages owed.
The TV revenue situation in Spain is different as Real Madrid and Barcelona negotiate their own TV fees and take 50% of total TV revenue and also sell them all over the world. Yet not long ago, there were protests at Barcelona when the club said that they had to reduce their budget and would have to eliminate some sports. The situation of other clubs is far more critical and six of the 18 top division clubs are already under bankruptcy protection.
A study by Deloitte showed that revenue in Europe’s top leagues — England, Germany, Spain, France — rose by an average of 4% last season to 24.5 billion, but player salaries soared more. It also states that England’s top division generates most revenue (3.6 billion dollars) and that Germany’s is the most profitable with an operating profit of 248 million dollars last season.
Clubs should be warned by what happened in the Scottish League where 140-year-old Glasgow Rangers, the country’s leading winners with 54 championships, were declared bankrupt with a 30 million dollars debt as a result of some illegal financial dealings by a previous owner. A new Rangers was formed, but they had to start in the bottom (4th division) with players from their junior divisions as their mostly highly-paid professionals left.
FORMULA ONE. When Formula One supremo Bernie Ecclestone said last week that they were still interested in holding a Grand Prix in Argentina again when they could deal with “some serious people”, it was bound to bring some reaction from this end. Tourism Secretary Enrique Meyer is still alive although President Cristina Kirchner said she would “kill him” if it did not come off after announcing the return of Formula One in March and he reacted. Meyer said that there was no lack of seriousness from Time for Fun, the company that offered to organize the races, but the cost of staging Formula One here turned out to be much higher than the figures quoted by that company.
Security Minister Nilda Garré said some time ago that soccer club officials lack the capacity to manage clubs. She was right, but she could have included some government officials.
It is not clear why the Formula One negotiation was done with a company, Time and Fun — was there a kick-back? — instead of directly with Ecclestone, the man really in charge. Then there would have been no mix-up about the real cost. In fact, this should have been done before the president’s announcement, although she likes announcing “good news” some of which then does not happen.
Now Time and Fun say they will have another try in 2014.