Foreign Investors (Good or Bad)?

                                                

     A topic that has been brought up a lot in the last couple years is whether foreign investors in football leagues throughout Europe are beneficial or detrimental.  This has been a problem in England with clubs such as Chelsea and Manchester City, but up until now, these have been mostly isolated incidents.  The first foreign investors have made their way into Spain and the reaction to it is mixed.
     Malaga FC was bought this summer by Sheikh Abdullah Al Thani, and since then the team has spent some huge amounts of cash in the transfer window for both players and a manager.  One of the more respected and experienced managers, Manuel Pellegrini, took on responsibility for the club just before his arrival.  Malaga FC also spent 50 million euros on players for the 2011/2012 season.  In the same season, Racing Santander saw itself taken over by a new owner in the form of Indian businessman Ahsan Ali Syed.  Owners like these have "unlimited" income and can spend it to buy players by personally financing the team.
     People such as Sandro Rosell are immediately cautious about foreign owners.  Any team in La Liga, besides the one being taken over, do not want clubs to have unlimited spending ability.  Rosell wonders what will happen when they have "limitless resources" and are able to buy any player they want.  I see a couple possible reasons for this and a couple possible outcomes.  First, Barcelona and Real Madrid absolutely do not want foreign owners.  The fact that other teams are able to become more competitive in this manner is threatening.  Also, a foreign owner is likely to disturb the transfer market and wages.  Teams like Manchester City have shown that limitless cash causes the transfer market to become unreasonable resulting in players prices being highly inflated.  In the same manner, foreign owners are willing to exponentially increase wages in order to tempt a player to play for their team.  This threatens other teams since it can lead to poaching of youth, poaching of players, and a complete reworking of player's salaries in order to keep them.  These are extremely negative consequences for existing clubs as they are not able to compete through their model (fan-owned or other) with a team that has a foreign investor.
     What are the positives? First, a foreign investor is likely to bring in the best talent in the world.  This increases the talent level of the particular league as long as he is not stealing talent within the league.  For example, Manchester City got the likes of Yaya Toure, David Silva, and Mario Balotelli.  All these players were foreign and therefore strengthened the league with their addition.  However, players like Nasri (Arsenal) who are taken from within the league upset the competitive balance.  Another positive is that the league becomes more competitive.  A team that is able to acquire this talent will most likely challenge for a top four finish, or even challenge Real Madrid and Barcelona.  If this happens, the two horse race of La Liga will end.
     Is allowing foreign investors beneficial or detrimental for a league? Does it create or upset the competitive balance?

Sources:  http://www.goal.com/en-gb/news/3277/la-liga/2011/11/08/2747731/barcelonas-sandro-rosell-wants-16-team-league-la-liga-has ; http://uptill1.com/wp-content/uploads/2010/01/540PX-1.png

Possible New Reforms?

     The president of the blaugrana club, Sandro Rosell, brought up the financial disparities in La Liga this past weekend in Switzerland and talked about possible reforms that could be instated.  Judging by the fact that only four teams of La Liga's 20 are considered in a financially "stable" condition, something needs to be done to balance the budget of other teams.  These four teams Barcelona, Real Madrid, Athletic Bilbao, and Osasuna are in the minority.  It is believed by many that the other 16 teams will fail financially, resulting in relegation or a complete disintegration of the club.
     Sandro Rosell's solution was to decrease the league size from 20 teams to 16 teams.  His advice was to complete this downsizing in the next couple years.  Why is this idea proposed?  By doing this, the best players will be more concentrated and possibly increase the competitiveness of the league.  This theory is plausible; however, since there are many other leagues in existence, it is likely that players would travel outside Spain.  The main argument to downsizing lies in conjunction with a new TV deal.
     As stated in one of our earlier blog posts, a part of the financial disparity among La Liga teams exists in TV deals.  Real Madrid and Barcelona get a huge sum of money from Media Pro and other sponsors due to their popularity.  However, other La Liga teams are not able to get as much money from individually negotiating their TV rights.  In this meeting, Rosell finally conceded that La Liga BBVA is in a very poor condition financially.  In order to help weaker teams and increase competitiveness, he says that La Liga must adopt an English Premier League or Serie A style of TV rights.  By reducing the number of teams while adopting this new TV reform, the amount of money teams in La Liga get will increase since they are splitting it amongst fewer clubs.  All in all this is not a terrible idea.
     So what are the arguments against it?  First, you are changing the history of the league.  Reducing the number of teams is changing the foundation of the league, similar to what NFL owners wanted to do by expanding the NFL season.  By eliminating four teams, you are removing eight games from the season.  This changes match day ticket sales, the amount of games a player plays, and all the records in the history of the league (fewer games makes it more difficult to match goal totals).  The benefits are that the players do get more rest in a busy season, the league could possibly become more competitive, and it would save teams from financial disaster.  Do the pros outweigh the cons?  Let us know what you think.

Sources:  http://www.deltaworld.org/sport/Sandro-Rosell-advocates-a-16-team-League/ ; http://www.goal.com/en-gb/news/3277/la-liga/2011/11/08/2747731/barcelonas-sandro-rosell-wants-16-team-league-la-liga-has ; http://www.zimbio.com

Breaking Down the Revenue

     A few weeks ago in class, we took a look at the Deloitte Football Money League report for 2010.  The graph pictured above is a more updated version of the report; however the figures I'll be using will be from the 2010 issue.  This annual report breaks down the finances of the top-20 highest earning clubs in soccer for the previous season.  While I'd like to write a blog post on a La Liga topic without returning to the persistent idea of the league consisting of Barca and Madrid, and then everyone else, this report once again supports this view.  Of the 20 teams dissected in the report, Madrid landed the number one spot.  Barcelona was right behind them at number two.  The next eighteen teams on the list consisted of zero Spanish teams.  So, once again, we can see that Barcelona and Real Madrid really are in a league of their own within La Liga.  We've talked enough about the domination of these two teams, so I'm going to put that issue aside for this post and instead break down the revenue of these teams to see just exactly where they're getting all their money from.
     I'll start with Real Madrid.  In 2009, Madrid became the first sports team ever to bring in over 400 million euros in revenue!  So just where did all this money come from?  The simple answer is broadcasting.  Of their approximately 401 million euros in revenue, 40% of it comes from broadcasting, 35% from commercial sales, and the remaining 25% is from matchday.  Madrid's 160.8 million euros from broadcasting is more than the total revenue of every club outside of the top-ten on the Money League list.  This means that you could take away the 60% of Madrid's revenue coming from matchday and commercial sales and they would still be sitting in the top-ten financially.
     Barcelona's financial breakdown is very similar to Madrid's.  Whereas Madrid has been on top of this list for the past five seasons, Barcelona overtook Manchester United for the second spot from 2008 to 2009.  Of Barcelona's approximately 366 million euros in revenue, 43% comes from broadcasting, 31% from commercial sales, and 26% from matchday.  The breakdown of Barcelona's revenue is therefore very similar to Real Madrid, with Barcelona relying slightly more on it's broadcasting deal and slightly less on commercial sales.  Barcelona's 366 million euros in 2009 was equal to Madrid's total in 2008, so based on that, it would not have been shocking at all to see Barcelona join Real Madrid in the exclusive 400 million euros revenue club after the 2010 season, but as we see in the graph above, they fell just short of this benchmark.
     So if you treat Barcelona and Madrid as one combined entity (for comparative sake) we can see that approximately 42% of their money is from broadcasting, 33% is from commercial sales, and 25% comes from matchday.  Let's compare this to some other clubs in different leagues.  When you look at the elite teams in the EPL such as Man U, Arsenal, Chelsea, and Liverpool, none of these teams break the 100 million euro mark from their television deals, and none of them had more than 40% of their revenue coming from their broadcasting deals.  They generally brought in more money from commercial sales or matchday figures, bringing in as much as 45% of their revenue (in Arsenal's case), from matchday sales.  Their percentage of revenue coming from broadcasting depends much more on how they do in any given year than it does for teams in La Liga.  An example of this is with Liverpool, who's revenue from broadcasting rose 5% after coming in second place in the Premier League the previous year.
     The fact that only two of the top 20 teams on the "rich list" are from Spain seems low, but it's understandable.  The fact that the top two teams on the list are Spanish, and then there's no other Spanish team in sight, however, is alarming.  Barcelona and Madrid bring in so much money from commercial and matchday sources that if La Liga were to restructure its TV deals, these two teams would still have a huge financial advantage.  It would simply be less than the massive disparity gap that exists today.  We've talked so much about Barcelona and Madrid's dominance in La Liga.  This report shows us however that we have been too narrow-minded when looking at the dominance of these two teams from a financial aspect.  Barcelona and Madrid don't just dominate La Liga financially, they're beginning to break away from every soccer team in the world.  While a lot of this has to do with their national and global popularity, they don't necessarily have huge advantages in this regard when compared to a team such as Manchester United, for example.  The advantage comes from La Liga's TV deal set-up.  Is it time something is done?

Sources:  http://www.deloitte.com/view/en_GB/uk/industries/sportsbusinessgroup/6a5fb29b3f907210VgnVCM100000ba42f00aRCRD.htm ; http://i.bnet.com/blogs/deloitte-total-revenues.jpg

Levante: Number One in the Table

     After eight games played in La Liga, the name atop the table is a new one. FC Barcelona has enjoyed one of their most successful starts in La Liga now with 14 games without a loss. Real Madrid have seen great success on the pitch as well, losing only five points out of a possible 24. Sevilla, like Barcelona, still has a zero in the loss tally as they remain unbeaten through eight. Málaga also had its best start to the season after being taken over by a foreign owner. Even Valencia was one win away from their best start in club history after three successive wins at the start of the season. Despite all this, these big fish all find themselves trailing a minnow.

     For the first time in club history, Levante is beating out every other club in the Spanish Primera. This is an incredible feat for a couple reason. First, with a 3-0 win versus a top Spanish league team in Villareal, Levante have now won six straight games. This winning streak marks a record in their club history. Also, Levante have only been in the first division for six seasons with their best finish being around the middle of the table with the number 10 spot. Last season they escaped relegation by only two points. All these records become even more impressive with one thing considered: Levante spent the least amount of money in the last transfer window. 

     According to Sid Lowe, Levante only spent €210,000 this transfer window. Levante has a payroll of €6.5 million and a budget of €22 million. When considering that Barcelona and Real Madrid have several players that make more than Levante's payroll, the success this team has achieved is incredible. Their entire budget is only five percent of Barcelona's budget, yet they are still leading La Liga. This raises several questions. Is it necessary to have financial restrictions and revenue sharing? Right now one of the smallest teams is leading the league regardless of its budget. Does success come down to money or is it about how the team is organized? We will see as the season progresses whether or not Levante is able to keep their spot at the top of the table.

Sources:  http://www.guardian.co.uk/football/blog/2011/oct/17/levante-la-liga-expendables-2 ; http://en.wikipedia.org/wiki/Levante_UD

La Liga vs. EPL: Television Rights

   

  

     How does La Liga sell it's television rights?  What are the differences between La Liga's set-up and that of the European Premier League?  There are pros and cons of each, but which one is better?

     In La Liga, each team is on their own to set-up television deals.  This means that the better, or more popular, teams are more likely to reach more lucrative deals for their clubs, while the less successful teams will simply take what they can get.

     In the EPL, the structure is much more equitable.  The television rights are sold collectively, rather than individually.  The total revenue is split into three groups.  The first group has 50% of the revenue, which is split equally amongst each of the twenty EPL clubs.  The second group has 25% of the revenue, and this is split-up based on league rankings.  The team at the bottom earns X amount of money from this 25%; the 19th-place team earns 2X, 18th-place team earns 3X, and so on.  The team who comes in first will receive 20 times more money from this pool than the team that finished in last.  The remaining 25% makes up the third group.  This money is paid as facility fees, which are determined based on the number of TV appearances.

     There are a few key points to think about when analyzing the differences between the two set-ups:  which one is more fair for the clubs, which one better maintains a competitive balance throughout the league, and which one brings in more money for the league as a whole.

     We'll start with the issue of fairness.  It seems only right that if you succeed on the pitch, you should be rewarded for this.  The better teams deserve to get more money than the worse teams.  In this way, La Liga is more fair than EPL.  But keep in mind that EPL does still give an advantage to the teams who do better.  They split up 25% of the revenue based entirely on league rank.  Is the EPL giving enough money to the better teams in the league?  Are the better teams in La Liga receiving too much money for their success?  If the EPL split up the 25% evenly, and the 50% based on rank, would that be more fair than either of these two current set-ups?

     Competitive balance, which is undeniably a good thing for a league, is clearly more likely to be achieved through the EPL's more equitable distribution of the revenue.  Having more teams in the league with similar finances minimizes the chances for one or two teams to monopolize the talent.

     Finally, we need to look at which television rights structure more greatly benefits the league financially.  Looking at the Domestic markets, we see that while the EPL brings in 1,179 million euros from its television deal annually, La Liga brings in only 500 million euros each year.  In addition, more than half of this 500 million goes to just two clubs, Barcelona and Madrid.  La Liga as a whole not only brings in less than half of the EPL, but it makes less from Domestic TV deals than Serie A and Ligue 1.  This evidence shows that La Liga's teams, outside of the top two, are not getting anything close to what they deserve financially from television deals.

     It seems clear that the EPL structure is better for the league as a whole without a doubt.  La Liga benefits Barcelona, Madrid, and maybe a couple of other clubs who have gained popularity and achieved success throughout the years, but the large majority of the league misses out on receiving much more revenue.  The EPL benefits the league as a whole, but if the top teams in the EPL decide they don't like sharing the money that they're bringing in, could this be yet another factor in setting up the much talked about European Super League?  Even if we assume that the EPL set-up is better, which not everyone does, this does not mean that the EPL set-up is the best.  Would changing the percentages of the three groups to decrease the amount of money split equally and increase the amount of rank-based distribution make things more fair while still keeping the desired competitive balance?

Sources:  http://www.premierleague.com/page/Faqs/0,,12306,00.html ; http://forzafutbol.com/2011/04/tv-revenues-comparative-view.html ; https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8wzYBj0IjBWcpBYqlvdaP20YyEDU-4r7Nrt6PX0C2gdNaf31lp02yH53uUw7xxkkmOw69MCpbkRfHudi7-WnePZibUjtgP1_YNlV-Ye2p7Q5Wh2y51mGHAVEpwQwCdeOOAwu_hoBiSw/s400/16+Hearts+TV+Rights.jpg

A Never Ending Cycle

     Finding a financial balance within La Liga will not happen unless league-wide, serious restructuring is done to share revenue.  In the current system, top-tier clubs must make more than smaller clubs within TV revenue sharing.  It is the current understanding that if certain clubs and players increase television attraction more so than an opponent, the overall TV revenue will not be split equally.   There are many reasons for the larger clubs to protect this right, including how the revenue acts as a necessity to sustain all of larger clubs inflated player salaries so there are zero non-paid salaries.  If the players continue to be offered enormous salaries, the big market teams will continue to fight for more revenue.  So unless there is a well-structured salary cap, one that does not scare off the footballers to other leagues both nationally and internationally, there will continue to be imbalance.

     One could say that as it is seen in the EPL, a balanced revenue sharing from TV contracts helps maintain more thorough competition.  However, a full-blown restructuring would need to happen in La Liga.  Completely evening the playing field between particular clubs and markets simply is not realistic, and most likely will not happen in a democratically governed sport that has turned more into a business than anything.  The large market clubs need the large endorsements and revenues in order to even stay afloat.  Jose Maria del Nido is quoted as saying, “The kind of debts that Real Madrid has, in truth, is manageable, just as the €532 million debt (2010 audited figures) that Barcelona has, but to make them serviceable, both clubs need to generate money, at least €400 million annually, to sustain themselves.  A reason why they are resisting any major restructuring of the TV money deal – at least for now.”  So what is the best way for financially balancing competition between clubs?  Is the Super League indeed what should happen?

Sources:  http://www.totalbarca.com/2011/opinion-pieces/the-truth-behind-del-nidos-tv-deal-revolution/ ; http://file.shotsharing.com/photo/311414490/mid/Mediapro's-sign-on-top,Torre-22@-Mediapro,-Barcelona.jpg

Summer Spending

     There are several ways to evaluate the financial means of any team.  One could look at total revenue, total spending, or total profits in any given season.  On a smaller scale, it is also possible to get an idea of a club's spending power by looking at how much cash they spend in a transfer window.  To get a better idea of the recent spending of clubs, we will look at the 2011/2012 summer transfers.  Because there are 20 teams in La Liga, we will specifically look at a couple of the top and bottom teams in terms of summer spending.
     1. Athletico Madrid: €65.5 Million - Los Rojiblancos made a huge splash in the transfer window, signing a total of 11 players from different clubs.  Of these 11 players, only five were actually purchased (the others were on loan or free transfers).  The most notable was Colombian striker Falcao, who arrived for €40 million from Portuguese side Porto.  It is important to keep in mind that Athletico sold Diego Forlan, Sergio Aguero, David De Gea and others for €85.8 million.
     2. Malaga: €58 million - With their new owner, Malaga bought eight new players and acquired ex-Madrid star van Nistelrooy on a free transfer.  Their two most expensive signings were Santi Cazorla from Villarreal for €21 million and Jeremy Toulalan from Lyon for €11 million.  That being said, Malaga did not sell a single player during the summer transfer window.
     3. (tie) Barcelona: €55 million - The Blaugrana spent a load of money on two star players in the form of Cesc Fabregas (€29 million before incentives) and Alexis Sanchez (€26 million before incentives).  With the sales of Bojan Krkic, Oriol Romeu, Jeffren Suarez, and Martin Caceres, Barcelona recovered €21.5.
     3. (tie) Real Madrid: €55 million - The royal whites made some high profile moves in order to try to compete with Barcelona.  The additions to the squad were Fabio Coentrao (€30 million), Raphael Varane (€10 million), Jose Callejon (€5 million), Nuri Sahin (€10 million), and Hamit Altintop (free).  With all this cash spent, Madrid only made back in the region of €10 million from the sale of a couple players.
     For comparison, five teams spent under €3 million in the summer transfer window.  The bottom two teams are as follows:

     19. Mallorca: €1.1 million - The small island team only spent money on two players this summer. Alejandro Alfaro from Sevilla cost a mere €0.7 million before incentives, while defender Pablo Caceres made up the rest of the transfer budget with a fee of €0.4 million.  They sold two players for €9.25 million.
     20. Levante: €1 million - Levante received a load of players from other teams, but only spent cash on Felipe Caicedo from Manchester City (€1 million).  Interestingly enough, they immediately sold the same player to a Russian team for €7.5 million.
     Through these statistics, it is easy to see that there are only a couple teams that are able to spend above their costs.  Even though Athletico was first in the spending category, they sold many of their best players so they did not incur a loss.  Even the teams that spent very little sold players so they did not lose money in the transfer window.  Does this demonstrate the power of the top couple clubs?  Does Malaga's new owner just increase the uncompetitive balance?  Will Malaga challenge Real Madrid and Barcelona in the next couple years like Man City has done in the Premier League?

Sources:  http://www.betinf.com/spain_transfer.htm ; http://en.wikipedia.org/wiki/List_of_Spanish_football_transfers_summer_2011 ; https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYIykJbaIfv6QzVDDIn5d_8YMqu-jB-psvtdhBdiuOj-9I1JcWLJuFL8uK1-1DhQLStHaF6s2bJ6CQSkvFXwn1ZzQHG7Ghe9QWyCkahv8CKqmZixF9iKlfk10-F4lFhY8zXG1Z5eKhb6Y/s760/radamel-falcao-atletico-madrid-fotofootball-002.jpg