Monday, April 19, 2021

Analyzing Europe’s soccer financials — as a chem major

by Sean McLaughlin
lawrentian.com

I would like to preface this article by warning the economics students at Lawrence University for what will inevitably be a poor usage of economic terminology in the article to come. I am a STEM student after all; please forgive me butchering your major.

Professional Soccer is the most popular sport around the world for a reason. Ask any soccer fan in basically any nation besides Canada and the United States about their support for their club , and you’ll hear many a tale of a lifelong love story between a person and their club. No matter what their relationship during the week, entire cities will come together to support their team on a Saturday afternoon for 90 minutes. Old quarrels are left at the stadium gates, replaced by hands on shoulders and tens of thousands singing out chants about their team’s best players in unison. The spectacle is truly out of this world. Historic rivalries consume major media outlets and pub conversations for days in advance of major matches. From El Clásico between Barcelona and Real Madrid in Spain, to Rome’s Derby della Capitale between bitter rivals Roma and Lazio, to the Old Firm Derby between Scotland’s two best clubs Celtic and Rangers, there is truly no other passion that compares to that shared by tens of thousands of fans crammed into a historic footballing colosseum. And yet, with the formation of the European Super League on the horizon, the passion on the continent where the sport they call Football found its origin over a century ago may soon fall by the wayside in favor of the financial gain of a few elite clubs.

The idea for the European Super League has been bouncing around for just over a decade. Put forward by Real Madrid club chairman Florentino Pérez in July of 2009, the ESL proposal was aimed at creating a league made up of the best and most historically dominant clubs across Europe. Clubs like Pérez’s Madrid, the record holders in both Spanish league and European Cup titles, would be joined by Manchester United, the record holders for English Premier League titles; AC Milan and Internazionale, perennially among the top three in the Italian Series A, Bayern München; a German club who have won the national Bundesliga a record 8 straight times; and a host of other elite teams from European nations to comprise an international league of what would essentially be a league of the best clubs in the world.

The ESL has been put forward as essentially an alternative to the UEFA Champions League. Formerly known as the aforementioned European Cup, the Champions League is a tournament comprised of the best teams from around Europe, who are able to qualify in a number of manners. Leagues are seeded by the governing body of European soccer, United European Football Association, on the basis the record of their clubs in the competition over the previous few years. As such, the teams finishing in the top few positions of each European national league qualify. In higher seeded leagues, like the English Premier League or Spanish La Liga, this means teams finishing first through fourth automatically enter into the preliminary group stage. In lower seeded leagues, less positions are awarded. The French Ligue 1 only receives three positions, while the Dutch Eredivisie only gets one automatic bid, with the second-place team entering into the third and final round of two-legged playoffs against another European club in order to gain admission to the group phase. Some leagues, like the Scottish Premier League, are only to put forth one team which enters straight into the first round of qualifiers , and thus must win three playoff ties in a row in order to enter into the group stage.

The Champions League is a massive source of revenue for clubs involved, with financial incentives available for each round of progression. This in turn allows for the best teams in Europe to establish a sort of monarchy, or rather an oligarchy, at the pinnacle of the European game as the extra cash flow allows them to afford more expensive players in the transfer market. As such, European soccer has increasingly morphed into a money grabbing operation for the most powerful clubs on the continent. But naturally, as the greedy never are, these clubs aren’t satisfied with the current state of their financial dominance.

Thus, the idea of the European Super League was born. Pérez’s proposal presents as incredibly entertaining, bringing with it the prospect of watching the best players in world football playing against one another on a weekly basis and hotly contested title race has captured the interest of fans not only in Europe, but across the globe. I myself was foolishly convinced of the merit of the ESL for a long period of time some years ago, as the club I support, Chelsea FC, would all but certainly be among the admitted teams. But under the surface, the attraction of the action the ESL would bring about is fraught with problems. As you may have guessed, it represents yet another step in the direction of financial power being concentrated into the hands of the few super clubs already dominating the game. Still, you may be saying to yourself, “So what? If this means I get a guaranteed quality match every time I switch on the television, who am I to care who gets the money? Entertain me!” Well, the repercussions of this wealth concentration run far deeper than increasing the riches of super clubs.

With the current structure of national leagues and the Champions League has already concentrated money in the hands of a few clubs in each of the major European leagues, lower league clubs have seen finances becoming tighter and tighter. The major catalyst for the transfer of wealth we’ve seen in recent decades were the TV deals of the late 20th and early 21st centuries, with stations like Sky in England and NBC in the United States paying hundreds of millions to acquire the highly sought-after rights to broadcast the matches of Europe’s major leagues. The effect is more pronounced in England, where the TV deals were worth the most, yet can be seen in principle across Europe. Teams in the first division rake in tens of millions more than teams in the second, third or fourth tiers of the professional football pyramids in each country. The money was welcomed by all, with the logic relied upon surrounding trickle-down economics. (I apologize to all of my economics major friends for the awful explanation that you’re about to encounter. ). Essentially, the proposal was that the injected cash would flow down the football pyramid as first division clubs more frequently were able to afford to buy the best players from the second division and below, and thus by transfer fees, the money would “trickle down” to less financially well-off clubs. And while to some degree this has happened, with the best players from lower tiers becoming more regularly poached for sizable fees in recent years, the effect has been far less pronounced than originally hoped.

What has instead happened is a two-fold effect. First, the money has remained among top clubs, as they simply pass it back and forth as they buy and sell each other’s best players; Leroy Sané from Manchester City to Bayern München for a cool 40 million Euros stands out in my mind. Second, as a result of the financial incentive to be promoted to the first division, lower league clubs are racking up higher and higher debts in order to fulfil short term goals surrounding bringing in more expensive players to get them to the financial promised land. The result is even riskier financial standings than even before the money started flowing down to them, and the financial plight of many clubs has gotten far worse, far more quickly than it might have. As a case study, allow us to look into the (thankfully positive) history of Leeds United.

Based in England. Promoted at the end of the 2019-20 season, Leeds was no more than a year or two from financial ruin at that point in time. Owner Andrea Radrizzani explained in late 2019 that if the club failed to win promotion within three years, he would be able to continue to fund their operations. This worry stemmed from the contract given to legendary manager Marcelo Bielsa, hailed as the savior that would take Leeds to the Premier League. The manager had been given a contract worth 6 million British pounds per season-over six times the average salary in the second division, 870 thousand pounds. Thankfully, Leeds managed promotion in Bielsa’s second season. But if he had failed, Leeds would have been doomed to pay wages they could not afford based on the revenue of second division clubs and the money trickling down to them in transfers like the sale of Chris Wood to Burnley for just over 14 million pounds in 2017. Many other clubs are not so fortunate, with the prime example Bolton Wanderers, now in the fourth tier, who were as recently as the end of the 2019-20 season forced to play all academy products as a result of having to sell almost all senior players to fend off liquidation.

To return finally to the ESL, this disparity in funds would only be wildly exacerbated should it form. TV money already failing to trickle down to poorer clubs would go by the wayside, with all major outlets opting for the rights of the Super League. Furthermore, it would mean the possibility of Champions League money for clubs outside the traditional top clubs in each nation would be lost. One of the beauties of the Champions League lies the chance for typically middling or lower quality teams to go on a Cinderella run, much like Leicester City’s 2015-16 Premier League title win, and qualify to play Europe’s elite. The proposed format for the ESL would involve 5 “guests” each season, with only these 5 teams eligible for relegation by finishing in the bottom three, while the founding 11 “core clubs” would be immune to dropping out of the league for 20 years. This means that across Europe, teams not in the Super League would be fighting it out for a maximum of three places each season, as opposed to the guaranteed 64 places open for qualification in the Champions League each season. The continued presence of clubs in the ESL would allow them to prosper financially, while the rest of Europe was left to fall behind. This would all but certainly spell the end for smaller clubs, as their increased spending in order to reach the ESL would be met with less money coming in from the now poorer first divisions. What would ultimately be the result––and what fans ought to fear––is a transfer of wealth the likes of which sports have never seen, to the elite clubs in the European Super League. Smaller clubs will fold and the working-class fan will lose the ability to watch top-level soccer as ticket prices skyrocket in the ESL due to substantial demand while fans of smaller clubs will lose the chance to see their teams playing the best teams in the country. Competitions like the FA cup in England, which allow for smaller clubs to draw the Premier League’s elite and witness the spectacle of the likes of Liverpool playing a 3,000-seater stadium will fail to exist as the world’s best clubs neglect local competition for the money of the Super League. But most importantly, as a result of these repercussions, soccer will cease to possess the old magic and passion that has allowed for billions around the world to join arms for 90 minutes a week. That, I think, is a travesty we must avoid at all costs.