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Parity and Financial Fair Play

Posted By Brian Phillips On March 3, 2011 @ 10:37 am In Featured | 48 Comments

I have a new piece in Slate on parity in soccer, which of course means the lack of parity in soccer, which means the fact that Real Madrid and Barcelona have combined to win 51 La Liga titles compared to 28 for all the other clubs in Spain, and Blackburn is still the only club outside the Functional Big Three ever to win a Premier League title, and even a plucky underdog like Leyton Orient, after bravely winning an FA Cup draw against Arsenal at home, can expect to be roto-rooted into oblivion by Nicklas Bendtner at the Emirates. The piece is mainly focused on how league-structure decisions like the new plan for sharing TV money in Spain write this basic inequality into the rules. I also wonder whether that’s necessarily a bad thing—on the one hand, Barcelona-Almería might not be suspenseful (16-0 Barça in three games so far this season), but on the other hand, having a massive concentration of money and talent among a few top teams means that neutrals will at least get to see some fantastic collections of skill.

One point I’ve been thinking about since I finished the piece is how the new Financial Fair Play regulations [PDF] are likely to affect this situation. Right now, I think most of us have the sense that if UEFA succeeds in enforcing these—the likelihood of which is still open to discussion—it will work in fans’ best interest by eliminating some of the instability that comes with rampant deficit spending. If clubs have to balance their books, then transfer prices and wage bills should come back to earth, smaller clubs will no longer be competing against the Royal Bank of Scotland, and fewer clubs will suffer the fate of Gretna—sudden, dramatic success brought on by the arrival of a wealthy benefactor, followed by collapse and dissolution once the benefactor withdraws.

Admittedly, that’s simplifying the terms of the Financial Fair Play discussion a bit, but in broad strokes, I think that’s how the regulations have been seen. Threatening clubs with a ban from European competition if their revenue can’t cover their interest payments might (should?) put an end to the Attack of the Leveraged Buyouts. Limiting the extent to which donations from wealthy owners count as relevant income might (must?) slow the rate at which the game is colonized by plutocrats bored with their racing stables. Everybody wins, right? Even Abramovich supported the new rules.

Looked at from the perspective of parity, though, couldn’t you make the case that in the absence of any meaningful revenue-sharing system in the top leagues, FFP is just another method of using the rules to protect the status quo? After all, whatever you think of Abramovich and Sheikh Mansour—and there are a lot of reasons to think badly of them, obviously—their money has been essentially the only force in soccer over the last decade or so that’s been capable of even challenging the ingrained club hierarchy, much less overturning it. If money produces wins (by enabling clubs to hire the best players and coaches), and wins produce money (by increasing fan bases and leading to more commercial and sponsorship revenue), then an influx of cash from the outside, for all the instability it brings to the game as a whole, might be the only hope for a smaller club to compete with the top teams. By telling clubs “you can only spend the money you make from football-related activities” in an environment in which Barcelona and Madrid are able to hoard the lion’s share of all TV revenue in Spain, UEFA is essentially promising that Barcelona and Madrid (and Manchester United, and Milan, and Bayern Munich) will be on top for the foreseeable future.

Again, I’m not sure that’s entirely a bad thing (this is not a hard-hitting opinion post), and even if it were, it might be worth it to keep the debt spiral from turning global soccer into a puff of smoke floating beside a mountain. But it’s at least worth noticing that the rules that may represent the best hope for fiscal sanity in soccer are also likely to make it even harder for the fans of most clubs to hope for large-scale success. Burnley won’t have to keep up with Manchester United’s borrowing power (again assuming the rules are stringently enforced), but they’ll be putting their commercial income and ticket sales against Manchester United’s commercial income and ticket sales, and that’s a competition Burnley are never going to win. (Picture Bertie Bee, shedding a single tear.)

Consider, in this light, the verdict of football-investment adviser Daniel Geey in his brilliant Liverpool-focused breakdown of the consequences of the FFP rules, which is probably the best quick summary of the new scheme for anyone who doesn’t want to read a 100-page UEFA pdf:

Unlike smaller Premier League clubs who will probably have only a finite level of commercial income (mid-range stadium capacity, merchandising sold only in the local area, limited commercialisation of overseas markets), Liverpool are one of only a small number of global football institutions that have the ability to expand their international commercial activities.

Additionally, and most importantly, the club has the potential for a much larger stadium to bring vastly increased revenues. Liverpool’s annual match-day income from their latest accounts of £42.5m is dwarfed by Arsenal’s £100.1m and Manchester United’s £108.8m in revenues. Being debt-free (a big ‘if’) and having £60m worth of additional revenue each season creates a much larger revenue stream with which to break even.

Therefore, in the long term, Liverpool’s hopefully increasing international commercial performance (perhaps into China) along with the potential revenue windfall of a new stadium should allow the Reds to keep within the rules by having larger revenues to balance against larger transfer spending.

Liverpool’s global following should give the club a disproportionate revenue advantage when compared with probably all but two or three other Premier League clubs. The fact that Liverpool are 7th (measured by revenue) in the Deloitte Football Money League 2010 for Europe shows the potential for further revenue growth.

In other words, Liverpool—which, thanks to its long tradition of success, has enormous revenue potential compared to most other English clubs—should acquire a further advantage over smaller clubs under the new rules. So will Arsenal, so will Manchester United. Of course, practically speaking, Preston North End weren’t about to challenge Liverpool or Arsenal anyway, but for me, at least, it’s striking to think about all the ways in which the structure of the game essentially prevents them from doing so. Every once in a while, maybe a spectacularly well-run club like Lyon will challenge the old guard somewhere in Europe. The rest of the time, the occasional Birmingham-style Carling Cup run is all most fans of smaller clubs can hope for.


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