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