European football clubs face financial woes

Posted Saturday, August 27, 2011 by YAHOO Sport

MONACO (AP)—It’s not just European governments that are mired in debt. Financial problems are increasingly affecting the most beloved institutions on the continent—football clubs.

Work stoppages, club bankruptcies and spiraling debts are all adding up in football’s current debt column, even to the point of seriously affecting play on the field.

In Spain and Italy, football superpowers that won the last two World Cups, season-opening matches have been lost because players refused to play due to contract disputes.

It was all too much Friday for Michel Platini, the self-confessed football romantic who heads UEFA, the European governing body.

“There are a lot of red lights flashing,” said Platini, a French playing great who is widely admired as a world football leader. “I am afraid for the future of football. If football can’t go ahead because players aren’t being paid, that is a huge worry.”

Platini’s warning was delivered in his annual ‘state of the union’ briefing on European football, the day after the draw for the continent’s heavily watched Champions League tournament.

That he spoke in Monte Carlo was an unintended irony, highlighting the casino-spending culture that has brought so many clubs to their knees even during an overall 21st century football boom.

The Champions League, UEFA’s marquee competition, is so globally popular with fans, broadcasters and sponsors that UEFA will distribute at least ?750 million ($1.08 billion) in prize money and bonuses to the 32 clubs taking part.

Still, the money available to those clubs—just four each from England and Spain; three from Italy and Germany—helps disguise serious financial problems below Europe’s elite level.

Barcelona and Manchester United each got more than ?50 million ($72 million) from UEFA’s prize pot for reaching the Champions League final last season. That helped the two globally-branded clubs to rank second and third behind Real Madrid in Forbes magazine’s 2011 Rich List ranking clubs by revenue. Madrid raked in $537 million.

All three clubs carry nine-figure debts, a subject that deeply upsets Platini, yet the three can generate revenue to service them.

Man United tapped a new income stream this month by selling sponsor space on its warmup outfits for 40 million pounds ($66 million) over four years—worth more than the main shirt deal for all but a few clubs. Barcelona and Madrid also benefit from a skewed system of distributing Spanish TV revenues.

“Fifty percent of the TV rights go to Barca and Madrid, while the other 18 have to fight for the rest of the pie,” University of Barcelona finance professor Jose Maria Gay told The Associated Press.

“(The Spanish league) needs to centralize its TV rights, instead of (having Madrid and Barcelona) negotiating their own deals, and then exploit the rights and sell a product throughout the whole world” like the English Premier League, Gay said.

What Gay described as “a dangerous situation” came to pass this month when players in Spain’s top flight La Liga league went on strike to reclaim ?50 million ($72 million) in back wages owed to more than 200 players.

The first round of matches was postponed last weekend until an agreement was reached Thursday. Now, if wages are not paid for three months, players have the right to terminate their contracts.

But while this lets unpaid players look for paying work, it won’t solve the underlying problem of football clubs’ poor cash flow.

Six of the 18 Spanish clubs fighting for the relative scraps in La Liga are already in bankruptcy protection—included all three teams just promoted to the league: Betis, Rayo Vallecano and Granada.

Clubs can treat outstanding player wages as just another debt that can be re-negotiated, and suffer no league penalties for insolvency.

Gay noted that the old tricks football clubs use to balance the books— quick and easy real estate deals, selling players for a profit—don’t work in a recession.

The real estate bust caught Valencia with an old Mestalla stadium it cannot sell and a new stadium it cannot complete. In the past two seasons, the club has had to sell off World Cup winners David Villa (to Barcelona), David Silva (to Manchester City), Raul Albiol (to Real Madrid) and just this week Juan Mata (to Chelsea) to make ends meet.

In Italy, last-minute talks to avert a strike broke down Friday and the weekend’s Serie A matches will not be played.

The main issue was renewing a collective contract and players objections to clubs’ desire to have weaker players train separately. But as the talks heated up, financial issues came to the forefront. The clubs are insisting that players also pay a new Italian tax on high-earners, the government’s latest austerity measure to try to balance its budget by 2013.

This comes at a moment when clubs are financially strained.

In Italy, club revenues are largely derived from TV rights and clubs are getting less following new government rules negatively impacting the bottom line.

At the same time, Serie A giant Juventus saw its operating costs increase by 16.8 percent to ?100 million ($144 million) last season, mostly because of players’ wages and other player expenses including costly departures. Juve also failed to qualify for the Champions League.

Fausto Panunzi, an economics professor at Milan’s Bocconi University, said the financial difficulties in football are due mostly to high player salaries and high transfer fees. He also blamed Italian clubs’ lack of a diversified revenue base.

Counterfeiters of club merchandise are tolerated just steps away from the stadiums. “Why should you pay ?80 ($115) for an original item, if you can buy something close by for ?10 ($14.40) that looks the same?” Panunzi asked.

Most clubs in Italy don’t own their own stadiums, giving them little incentive to renovate them or hire them out on non-game days. Juventus is the exception. The Turin-based club has invested millions in a new 41,000-capacity stadium that opens this season.

Juve’s creativity in generating revenue fits the kind of club business model that will flourish under the “financial fair play” system devised by Platini, one of its playing greats.

UEFA rules designed to curb reckless spending by top clubs took effect in July and will be phased in over several seasons.

Under financial fair play, clubs face the ultimate sanction of being barred from UEFA’s Champions League and Europa League tournaments if they cannot break even on football-related business. Unlimited spending is allowed on stadiums, youth training and other infrastructure that can help clubs toward becoming self-sustaining.

“We will not be forced to take a step back on this,” Platini pledged Friday.

Indeed, European football can look forward to more financial fair play being applied at the national level by Platini’s 53 member federations.

“It is not just UEFA that should be looking at these (financial issues) but national associations too,” Platini said. “It’s not possible to go on with all these bankruptcies and debts without serious consequences.”

Colleen Barry reported from Milan; Joseph Wilson also contributed from Barcelona, Spain.