The football bubble is a topic with is currently quite discussed, in conversations and in the media. In this post we try to give some answers to some of the most common questions.
Is the Spanish League sustainable?
The Spanish League is economically unsustainable, because the revenues are less than 1.700 million of euro while expenses are around 1.800 million of euro, as the economist J.M. Gay de Liébana states in a recent article. Therefore, every year more debt is generated. This means that the working capital is getting more and more negative. Indeed it was 1.000 million at the end of the season 2010/2011. In other words, clubs cannot pay short term debts with the short term cash collections (earnings from the match day, sponsors or TV) they get.
What is the financial fair play?
It is a set of rules driven by UEFA, which wants to finish with the bad financial management in the European football clubs. It will come into force completely in 2014. There are 3 main objectives:
– The teams that want to take part in European competitions in a 3 years frame will have to prove at least two years with financial earnings.
– There will be a strict control, 4 times a year, on the payments and the funding of the clubs.
– Fines and penalties will be set to teams that don’t respect these rules, and they will be based on not allowing them to play in UEFA competitions.
Has any Spanish club been penalized for bad financial situation?
In the Spanish League there have been penalties to Mallorca, who was not allowed to play any European competition in the season 2010/2011, or Espanyol and Rayo Vallecano, which were banned this week.
Also Málaga has been banned to play any European competition for 1 year, and has appealed it. Apart from that, it will have to pay a fine of 300.000 euro.
But we have to mention that all this penalties have been set by UEFA, and not by the Spanish Federation.
Are other countries more strict in this issue?
Yes, for example in the Scottish Premier League. Glasgow Rangers, the mythical Scottish club that was founded in 1872 and that has won 54 League titles –more than any other club in the world-. In 2012 it was bankrupt, it was bought by a businessman, it was re-founded (now it is Rangers Football Club) and it was obliged to play in the Third Division, the last professional Scottish division. In their first season they have won the championship and will promote to next division.
Then, why it is not applied in Spain?
Basically, because it’s hard to swim against the stream. We just have to have a look on what happened in 1995, when thousands of supporters of Sevilla and Celta de Vigo protested in the streets after the Liga de Fútbol Profesional had ordered that they had to play in the Second B division (the third division in importance in Spain). The pressure of the people helped to avoid that the measure came into force, which forced a League of 22 teams instead of 20, because two teams from Second division had already gained a spot in the Premier Division.
On another hand, it is interesting for certain sectors that the society is busy and has something to discuss, like football, and avoids talking of crisis and unemployment.
Is the bubble bursting?
Up to a certain extent yes, as there are currently 22 teams under creditors meeting procedures, between Primera and Segunda division.
Moreover, clubs like Valencia, Elche, Levante or Hercules have been nationalized. This happened because Instituto Valenciano de Finanzas (organ of the public administration) guaranteed bank loans of these clubs to the banks, and these pledges have been executed as the clubs have failed to pay back the loans. The guarantees were agreed during years of real estate speculation, political protection and financial back up of different savings banks (like Bancaja).
It is symptomatic to see that the Administration is becoming shareholder of these football clubs by paying millions of euro, and at the same time it is cutting the budget in education and in the health system.
Is it true that clubs have a huge debt against the administration?
Yes, and to a shameful extent. According to recent data, the public debt is as high as 690 Million euros. The good news is that it is 8% lower than 1 year ago, because the Administration has started to take some measures. However it is still not fair for the rest of the society, as they are treated differently than the football clubs. Once again, it is hard to understand this laxity bearing in mind the current economic situation.
What are the solutions for Spanish football?
The solutions that we suggest are the following:
– Make a shock therapy to reduce considerably the debt. The most important expense in football is, by far, the football player salaries. Therefore, a first measure is to make a redundancy dismissal procedure. In football this means selling the best players and reducing the salaries of the rest. The rest of the employees of the club should be also included in the plan. This policy would imply a decrease in the level of the team, and therefore also of the sport results. However, it is necessary to go a step back to go two steps forward.
– Acquiring less expensive players. To do that it can be helpful to improve the scouting team in order to invest in young players from emerging markets. Also, clubs should invest in youth their young academy.
– Management teams have to become more professional. One of the reasons why the Spanish football is in this state is because of the lack of professionalism of its managers. Often managers are big football fans themselves, but lack management skills. Surely you indeed won’t have a hard time finding some frivolous or picturesque personalities within the first division’s management teams.
– The Federation’s League has to apply a strict control. As we’ve already highlighted, the Administration has started taking measures. Concretely, they are taking part of the income from pool lotteries, player transfers and ticket sales. But the authorities have to go further in this, whatever it takes.
Do you think that the administration, as far as they have a substantial lack of cash, will be more severe against deficit-loaded clubs? Or will they continue to follow the ancient bread and games spirit?