By Jimmy Burns
Forget about the Spanish junior team’s poor showing in the Olympics. Spain stills boasts the best soccer in the world. Earlier this summer its senior national squad, nicknamed La Roja, won the European Championship, setting a record as the first nation to win three consecutive major international tournaments in four years. Last season five Spanish clubs – Real Madrid, FC Barcelona, Valencia, Athletic Bilbao and Atlético de Madrid – reached European club competition semi-finals. Of these, Athletic Bilbao and Atlético went on to play in the final of the Europa League.
“Sport is one of the most powerful sectors of a country brand and probably the most immediate and effective way to exert soft power and reach a global audience,” says Enrique Ruiz, Spanish Tourism’s former head of global marketing. In 2010, Ruiz secured a marketing agreement with La Roja in the run-up to the World Cup in South Africa as part of a series of deals involving Spanish stars playing in the English Premier League and Real Madrid, the most powerful club in the Spanish La Liga. As La Roja approached the finals, as favorites, Ruiz pre-booked a worldwide ad campaign – seen by the readers of 25 major newspapers and 85 million YouTube and Facebook users – with the slogan:”Congratulations boys! The way we play is the way we live.” Spain won the final, securing its first ever victory in the tournament, with a goal by the FC Barcelona star Iniesta.
If Spanish soccer could be judged simply by its quality and success on the field, the sport and possibly the country itself would be laughing all the way to the bank. Instead, even Ruiz’s ambitious marketing campaign has been cut back as the Spanish government slashes public spending in the midst of an unprecedented economic and financial crisis. “Austerity bites, and unfortunately the government will not be renovating our agreements,” laments Ruiz, who now lives and works in London.
But the problems for Spanish soccer go way beyond a lack of government resources. As the new season gets underway, the sport remains embroiled in a dispute between a majority of medium-sized and small clubs and the big two, Real Madrid and FC Barcelona – the world’s richest soccer teams, with revenues of €479.5m and €450m respectively, according to the last Deloitte ‘rich list’ – over TV revenues. Real Madrid and Barcelona in recent years have taken around half the annual €600m pot of TV income, enabling them to buy the best players and pay exorbitant wages. The remaining 18 teams have earned far less than their peers in rival European leagues, where collective bargaining allows for fairer revenue distribution. Consequently, these teams believe they have no chance of challenging for the title. Seville-based Real Betis, one of Spain’s best-supported teams, was forced to seek court protection from its creditors.
According to soccer business analyst Fabian Lares of Madrid-based JB Capital Markets, the dominance of Real Madrid and FC Barcelona is linked to a genuine global mass following based on star players and one of the most enduring and fascinating rivalries in world sports. This translates into substantial revenues from merchandising and sponsorship.
According to Deloitte’s Football Money League, based on data for the 2010/11 season, Real Madrid’s commercial revenues (mainly merchandising and sponsorship) rose by €21.6m (14%) to €172.4m, with strong revenue accounted for by the club’s shirt deal with Bwin, its continued kit partnership sponsorship with Adidas and partnership with Emirates Airline. FC Barcelona’s revenue increased from €122.2m in 2009/10 to a club record of €156.3m in 2010/11, boosted by a €15m contribution from the new shirt sponsorship deal with the Qatar Foundation.
Lares says that the absence of a level playing field when it comes to TV revenue is in danger of backfiring, with fans losing interest in seeing any other encounter than El Clásico, as the matches between the two giants are known. “Spanish football likes to project itself as the world’s greatest league, but the reality is that the sector has been in a bubble just like housing. In fact you could argue that the bubble has burst.
It can no longer sustain an economic model on TV contracts unless these are renegotiated,” he adds.
And yet the model appears to be evolving, albeit at a glacial pace. Last year, a collective deal was discussed by the 20 clubs in the Spanish First Division. For the first time, clubs offered a ‘parachute payment’ to protect teams that are relegated: the sudden drop into the second division – and the drop in TV income from at least €12m to at most €2m a year – has seen too many clubs, still obliged to pay First Division wages, plunged into administration and financial crisis.
Under the deal, 45% of the money will be shared among 16 clubs, with the final amount depending on pay-per-view hits, league position and other variables. That left four clubs. Valencia and Atlético de Madrid, the country’s third and fourth most popular clubs, would receive 11% of the total, while Madrid and Barcelona would take 35% between them. As The Guardian‘s correspondent Sid Lowe put it: “The inequality would be enshrined. The bulk of Spain’s teams had signed away their chances of success but prevented their destruction. They no longer aspired to be the best; but they did aspire to stay in business. They had agreed, if a little reluctantly, to the status quo.”
But if discussions on the proposed deal bought some breathing space, it didn’t secure lasting peace. With the official start date of the 2012/13 season set for 19 August, Spanish soccer was facing disruption for the second consecutive year. Last year it was players taking strike action over wages; this year it is the TV contracts issue that has spun into fresh controversy, with GolT (Mediapro) and Canal+ (Sogecable), the two main TV platforms where spectators can watch games, not only claiming to represent the interests of different clubs but arguing over which matches they could broadcast and when.
The problems of Spanish soccer have been fuelled by a combination of factors: reckless spending, poor regulation, complicity between clubs and politicians and sheer greed. According to recent government assessments, clubs in the top two divisions owe €752m in unpaid taxes – a spike of €150m over the past four years. The top division alone held a combined debt (not just in tax terms) of €3.53bn last year.
In fact football is a mirror image of the country as a whole, with clubs in past years making huge investments in players and stadiums while getting deeper and deeper into debt. The case of Valencia football club provides a cautionary tale.
In 2007, in the midst of the property boom, it decided to buy itself a new 70,000-seat stadium – even though it had fewer than 40,000 members. The €300m cost was supposed to be financed by the sale of the land from its old stadium for €400m. Two years later, mired in the property-market crisis, construction stopped when the club realised that it could not find buyers for the old stadium. Lax financial controls had also left it heavily in debt, forcing it to sell off its star players.
Such has been soccer’s popularity, the government has been reluctant to call in the unpaid tax for fear that it will cripple the sport and provoke riots among fans. But UEFA, the European football authority, has tabled plans for a financial fair-play system under which all affiliated clubs wishing to participate in international competitions would need to break even on football-related income and spending. They will be permitted losses of €6.6m in the first two years, or up to €60m if a wealthy owner makes a one-off payment to clear debts. Real Madrid and FC Barcelona are not afforded such a luxury because the teams are owned by their club members, so they are having to be far more cautious than they have in the past on expenditure in order to balance their books. This summer has been the first in many years in which both clubs postponed any decision on a star signing. (Real Madrid waited until the very end of the transfer window to pay a knockdown price for the Croatian player Luka Modric, who was desperate to leave the Premier League club Tottenham Hotspur.)
It was not always thus. If soccer is among the few sectors to have been affected somewhat belatedly by the crisis gripping the nation, it is because it has long inhabited a world with its own privileges and rules, protected by its own fiefdoms. “Spanish soccer has for years been good entertainment. But it’s also been a far from transparent business, with opaque transfer deals and large-scale money-laundering, ” says Juan Milagro, a Madrid lawyer specialising in tax advice.
In soccer terms, Spain was a late developer compared with northern Europe. The country’s businessmen and traders learned it from British engineers and seamen in the late 19th century, with some of the early clubs earning royal patronage. But it was only in the aftermath of the Second World War that Spanish soccer came into its own as a popular mass sport, not just tolerated but actively encouraged by the Franco dictatorship as a diversion from the country’s political problems.
Few figures loom larger over the development of Spanish football into a global sport than the late Santiago Bernabéu, president of Real Madrid, whose eponymous stadium has endured to this day as one if the great sporting ‘cathedrals’, to which fans from around the world pay pilgrimage.
The stadium was built in the late 1940s by Bernabéu – a volunteer in the Franco army during the Spanish Civil War, and a fanatical supporter of the club – as the symbol of the new centre of power within Spanish soccer. During the postwar years, soccer clubs were given privileged access to petrol, a rare commodity in those days, for travel to away matches, and club presidents were able to draw on limited sums from a state support fund for sporting facilities. Bernabéu got one better on his rivals, getting the Franco state to help fund the building of the biggest stadium in the country.
Once the Bernabéu was built, its namesake set out to create a star-studded team led by foreigners, among them the Argentine-born Alfredo Di Stéfano, regarded as one of the best players in football history. Thanks to this team, the club enjoyed a golden decade in the 50s and early 60s, winning a succession of European Cups.
Those golden years were very much in the mind of the current Real Madrid president – construction magnate Florentino Pérez – when he set out at the start of a new millennium to transform the club into a global sporting entity. During a period of untrammelled economic growth, fed by easy credit and ambitious building projects, he renegotiated his club’s historic debt, modernised the Bernabéu and bought a renewable stable of international stars, including David Beckham. Real’s manager, José Mourinho, earns an estimated (and unprecedented) €14.8m a year, according to the magazine France Football.
If soccer is littered with examples of clubs that have brandished chequebooks and wound up with financial headaches, then Pérez seems to have worked even bigger miracles with Real Madrid’s balance sheet than its team sheet. In May 2001 he balanced the books through a complex property deal, exploiting the location of the club’s old training ground on the outskirts of Madrid. The deal involved the development of the land for commercial and public use, including the construction of four skyscrapers.
More than a decade later, Pérez’s construction company ACS is struggling while the powerful, politically influential Real Madrid navigates its own troubled waters. Its last two major signings, both in 2009 – of Portugal’s Cristiano Ronaldo for £80m (€93.9m) from Manchester United, and the Brazilian midfielder Kaka for €65m from AC Milan – were funded by Caja Madrid, a savings bank at the heart of Spain’s financial crisis. With five similar insitutions, the entity was absorbed into new bank Bankia, which looks set to be the main recipient of an emergency bailout by the European Central Bank. To make matters worse, the club’s sponsorship by an online betting firm registered in Gibraltar is the subject of a court case by a business association that claims the company is illegal under Spanish law.
Over at FC Barcelona, the development of perhaps the most talented and successful group of players in history secured a record €150m sponsorship deal with Qatar and a boost to merchandise sales around the world. But according to Carlos Tusquets, a leading banker and financial adviser to FC Barcelona, the club has had to adopt a cautious approach to buying expensive star players, having decided the price tag of Athletic Bilbao’s Javi Martinez is “too expensive” and delaying a final move to secure Neymar, the emerging celebrity of Brazilian football, who plays for the São Paulo club Santos. “We’ve got to see if the prices make sense and make sure we can afford it,” says Tusquets. “We have been reducing our debt.”
Three years ago, FC Barcelona’s success on the field was overshadowed by allegations made by its newly elected president, Sandro Rosell, that under his predecessor, Joan Laporta, spending had gone unchecked and the consequences brushed under the carpet. The result – according to revised accounts presented by Rosell and approved by the club’s general assembly, which represents the interests of 175,000 fee-paying fans who own Barcelona – was that instead of making the €11m profit that Laporta claimed for his last season, it had in fact lost €79m.
Laporta has strongly denied the allegations, which are the subject of court proceedings. But the feuding has damaged FC Barcelona’s reputation. The club – a standard-bearer for the Catalan national identity – has always claimed to have ethical and political principles that distinguish it from other Spanish clubs, with a strong democratic tradition. Its slogan defines FC Barcelona as being “more than a club”.
By its very nature, Barça is a social, cultural and political family. One unwritten rule was that, however visceral your attacks were while campaigning for the presidency, you wouldn’t then expose the most unsavory aspects of the previous administration. The new management, however, is arguing that it is precisely this culture of opacity and impunity that needed changing, as an obligation to the fans who are Barcelona’s owners and to set a higher standard.
One of the longest-serving football club presidents in history – Jose Lluís Núñez, who was in charge of FC from 1978-2000 – was sentenced to six years in jail last year after being found guilty on charges of bribery and falsification of documents. Josep Maria Huguet, the inspector of taxes in Catalonia from 1985-1994, received an 11-year term for falsifying tax returns in return for cash and properties at preferential rates.
Núñez had made a fortune out of the reckless and poorly regulated urban growth that took place in Catalonia during the last two decades of Franco’s rule (1957-73). One of his more notorious developments involved buildings in the picturesque Eixample district. To increase floor and parking space and speculate on property prices, Núñez’s bulldozers flattened old walls and imposed a crude urban monotony across a large swathe of the Catalan capital. In 1975, the year of Franco’s death, Núñez’s company constructed a hideous housing block next to Gaudi’s magnificent Sagrada Família, in the exact place where the original plans had at one time promised an extension of the religious masterpiece.
During his time as president, FC Barcelona’s membership swelled from 77,000 to more than 103,000 and its annual revenue from 817 million to 14.9 billion pesetas. It also won several trophies, including La Liga and the 1992 European Cup (its first) with manager Johan Cruyff’s ‘dream team’. Cruyff was well rewarded financially during Núñez’s presidency, as were managers such as César Menotti, Terry Venables and Bobby Robson and foreign star players such as Cruyff himself in the 70s, Diego Maradona, Gary Lineker, Michael Laudrup and Ronald Koeman.
Things would be looking far worse for FC Barcelona were it not for the TV broadcasting contracts that it shares with its main rival. Lawyer and long-term Real Madrid supporter Juan Milagro believes that the economic advantage gained by Spain’s two big clubs over their domestic opponents is now so great that the days of the Spanish League are numbered. “This is an irreversible process. The fact is that there are too many football clubs in Spain losing money, and too many Spaniards simply happy to go on watching the two big historic rivals fight it out,” he says.
Milagro foresees the gradual development of a much smaller Spanish League, rather like the US’s, with Real Madrid and FC Barcelona eventually forming part of a Super European League with clubs from France, Italy, England and Germany. The idea of such a league has been periodically discussed since the late 1990s when it was raised by the Italian company Media Partners, only to be shelved when UEFA reorganised its international tournament calendar to prioritise the lucrative Champions League tournament. In recent years Pérez and Rosell, presidents of Real Madrid and FC Barcelona respectively, have revived it.
At a soccer conference in Doha last November, Rosell suggested a breakaway European league might start by 2014, unless UEFA gives in to demands from the major clubs for a smaller domestic league and an expanded, if more exclusive, Champions League capable of boosting its worldwide TV audience. European soccer is regulated through a memorandum of understanding between clubs and UEFA that was signed four-and-a-half years ago. When this expires in 2014, the top clubs will no longer be legally bound to play in UEFA’s Champions League or, crucially, to release their players for international friendlies or tournaments, including the World Cup. The Spanish big hitters have had some support for the idea of a breakaway Super League in France, Italy and Germany. Although big English clubs have tended not to get involved publicly in the debate, and seem quite happy with the competitiveness, popularity and riches of the Premier League, the two global soccer overlords, UEFA and FIFA, look likely to come under increasing pressure from clubs that want to have greater control over their finances and the games they play. Analyst Fabian Lares believes such a Super League is “still far away”, with senior figures in Spanish football far from convinced that it will necessarily be in their interests, let alone a popular move with their fans.
National coach Vicente del Bosque thinks Spanish football’s success and popularity should be exploited as a brand at a time when the country appears to be the sick man of Europe.”La Roja cannot solve the problems of the country but it can serve as an example of a united team,” he says.
He believes it would be a mistake to scrap the Spanish league from which he picks his players – and thinks English fans in particular, given their tribal loyalties to local teams in their own country, would lead a popular rebellion against a Super League. “Can you imagine soccer without the English Premier League?” he says. “As for Spain, we need a league where revenue is more equitably distributed. It’s not good for the future of the game to have just two clubs dominating everything, although it’s going to be difficult to change things. Real Madrid and FC Barcelona are very powerful.”
Published in CNBC BUSINESS magazine September 2012
