Every football season the greatest teams in Europe have their sights set on a single prize. The road to the final is hard as always, and can be stuffed with hurdles such as injuries, the firing of coaches and bad refereeing. At the end of the journey, there literally is a pot full of gold. The UEFA Champions League pays out huge dividends for participants, and even more so for the eventual winner.
To compete for the UEFA Champions League and its enormous amount of money, challengers have to be more than well-run professional football organizations. The sportive and tactical aspects on the field have to be matched by the commercial aspect off the field and in the stands. Champions League winners who have successfully accomplished that synergy are Bayern Munich and FC Porto. However, those two are the only enterprises that have truly positive accounts. The others, not so much. From surprise finalist AS Monaco in 2003, to the mighty FC Barcelona of Ronaldinho in 2006 and Messi in 2009 and 2011, to the impeccable Manchester United of Cristiano Ronaldo in 2008, to last year’s winners Internazionale; all these clubs are willing to put themselves in major debts to conquer the most prestigious European sports prize. The ramifications are mind-boggling. The UEFA Champions League is the conflict diamond of modern football, causing huge damages everywhere in the European football landscape.
As every large European club these days, the only way to keep your eye on the prize is to invest. Most of the times, there is nothing to invest, because of lackluster management in the past. However, one has to keep up with the competition, and this results in an almost abnormal fear of ‘being left behind.’ This causes a snowball-effect. The biggest clubs, such as AC Milan, Real Madrid and Chelsea are of the opinion that they have to invest, and invest big in order to keep up with their fierce rivals. These entities turn to banks and private loans to finance their spending sprees. Other clubs are too scared to miss out on an opportunity to win a prize, and therefore they also take the leap and hold up their hand at the same debt issuers. Losses accumulate.
As the debt builds and the behavior of football clubs does not change, it is worth contemplating whether the UEFA Champions League should add the word ‘debt’ to its name. The UEFA Champions League used to be about the best football team, the most otherworldly football play on the planet. With time, it has transformed into a competition of headhunters, a façade behind which football clubs try to mask their financial troubles. A full prize cabinet is worth more than a solvable account.
An old Latin proverb says: Even the just may sin with an open chest of gold before them. In this case, the chest of gold is the prize money promised by the European governing organ, the UEFA. While it has openly criticized the big spending of clubs, most notably Real Madrid, this organ should be aware of its role as the facilitator of the current problem.
The numbers game
Numbers do not lie. In the above schematic overview, the 2008/2009 UEFA Champions League revenue of the ten biggest earners can be found. Among them are five eventual winners in the past ten years; Manchester United, Bayern Munich, FC Barcelona (three times), Inter and Liverpool FC. This should indicate that these teams have had a fairly large amount of revenue income over a larger period of time, thanks to the continental competition. However, nearly every club in the top ten has had to cope with big financial losses in successful tournament campaigns.
Liverpool has managed to produce positive numbers in their victorious 2005 campaign, recording a profit of 11 million Euros after taxes , but had to pay for this result in later seasons, eventually slumping to the worst financial crisis in the club’s rich history. AC Milan won the Champions League in 2007, in a year where their losses were a ‘mere’ 31,7 million Euros , compared to other recent seasons. Manchester United, the English giants who won the Champions League in 2008, were on the verge of bankruptcy in that very season, accumulating losses to the staggering amount of 700 million Euros.
The world’s leading football club, in terms of tactics and on-field capacity, FC Barcelona, also has some dirty secrets under their floorboards. 2006 saw a loss of 4,7 million Euros , 2009 saw a profit of 6,6 million Euros , and 2011 saw a loss of 21 million Euros. Every other year had a substantial larger loss than the fraction of 4,7 in 2006. This could imply that even a regular contender such as Barcelona cannot consistently produce positive numbers.
Last year’s champions, Inter, had a loss of more than half a billion Euros in seasons 2007-2009. Obviously, the highly successful season 2009/2010 should be a bandage to some of those wounds, but is it really justifiable for football clubs to keep investing? Inter’s chairman and majority owner, Massimo Moratti, says so. “All this silverware would not have arrived without all this expenditure. The considerable loss is justified to keep our team at the top level worldwide.” That is the thought of a lot of respectable European clubs, but is it the right thing to do?
It appears so. Without that kind of mentality and management, it is near impossible to win the Champions League. Bayern Munich did it in 2001 and FC Porto in 2003, but other than that, there are no clubs in the last fifteen years that have no true large debts that have won the UEFA Champions League, or even have gotten close to winning. Therefore, it can be concluded that UEFA Champions League success is almost equivalent to financial mismanagement. That leaves a nasty trail of blood on the once so coveted diamond that is Europe’s most prestigious competition.
Bursting the bubble
If this trend does not change over the next few years, the bubble that is the UEFA Champions League will eventually burst and a lot of highly respective football clubs will find themselves on the brink of bankruptcy. Recent history has shown that self-regulation among football clubs is not effective. Football clubs, especially large, internationally known clubs, are of such social-cultural importance that these institutions will never go completely bankrupt. Instead, clubs are being supported by local enterprises and sometimes even national government, in order to keep them from extinction. Club directors and officials acknowledge that mindset, and subsequently keep spending large amounts of money that they realistically cannot afford to do.
That is, unless the governing UEFA provides further rules and guidelines for financial fair play, and begins to fine clubs extensively. The ones that UEFA boss Michel Platini introduced last year are not more than rough guidelines that state that clubs should not spend more than their yearly turnover.
Therefore, threats of exclusion from the competition are to be taken with a huge grain of salt, as this will never occur in reality simply because the stakes are too high and both parties need each other to generate revenue. Both the UEFA and the clubs will never succumb to a true level playing field, financially speaking. There are always ways to maneuver around the rules, and clubs will find them to stay on top, despite the deterioration of their financial well-being.
Unless the UEFA demonstrates a hands-on approach combined with strict measures, the diamond that is the Champions League will be further blemished with the stench of financial mismanagement. Is that really the image that the largest sport in the world wants to project to the community?
This article was also published in Asset Magazine, a publication of Faculty Association Asset, the association for all students of the Tilburg School of Economics and Management (TiSEM). Asset is the largest economics and business-oriented association in the Netherlands.