The German football business model has become a focus of attention since the very successful World Cup of 2006. The image of Germans welcoming the world and having fun in modern stadiums and well organized fanzones has left a lasting impression. It has also helped German football to recover from the troubles of the early 2000s. and the German clubs have cashed in on the recovery. Although ticket prices are relatively low in Germany, they rose rapidly after the World Cup- between 2005 and 2008 matchday income per fan rose by 44%.
In fact, in the 1990s most German clubs were worried that they were falling behind. At the club level Germany has been somewhat slow to develop. The Bundesliga only became professional in 1963 (although shamateurism was commonplace), the second division was only added in 1974 and the third in 2008. While the national team of West Germany was a spectacular success, with three World Cup and two European Championships in 36 years, in the last 23 years only one European championship is considered a poor show in Germany (eat your heart out England fans). German performance in club competition was even more disappointing- Dortmund’s Champions League win in 1997 was the first time a German team had reached the final in more than a decade.
At the end of the 1990s many German clubs looked to England, and the commercial success of the Premier League, and argued that if German clubs were to be successful they needed to raise more capital through stock market flotation. Hamburg and Werder Bremen tried to do this in the early 90s but were blocked by the German FA. It wasn’t until 1998 that the corporate investment was allowed, and Borussia Dortmund, whose president had been at the forefront on the campaign for more access to finance, floated on the stock exchange in 2000. Fearing that all of the clubs would fall into corporate hands, the FA passed the 50+1 rule requiring club members to retain a controlling interest in the club (with longstanding company owned teams Bayer Leverkusen and Wolfsburg being granted an exemption).
The early 2000s were clouded by the failure of the pay TV broadcaster Kirch, which went bankrupt owing money to the League, and while a new contract was organized broadcast income was flat at a time when it was rising elsewhere. Broadcast rights are still relatively cheap in Germany, with the most recent deal generating just over €600 million a season for domestic and almost nothing for overseas rights, compared to the Premier League’s £1 billion a year from domestic rights, and almost as much again from overseas rights- in total around four times as much as the Bundesliga.
As I pointed out in part I of this blog the performance of German clubs has not been so spectacular over the last decade, so why all the hype? In part it’s just the “availability heuristic” – whoever is successful now is thought to have a monopoly on the right approach – who is talking about La Masia now? But it also reflects political views about the right way to run football clubs. Many people dislike commercialism in sport in general and in football in particular. This reflects
(a) Dislike of the excesses of the capitalist football model- high rates of insolvency, frequent changes of ownership, some dubious owners, commercial (=high) ticket prices
(b) A desire for a more fan-oriented model- fan representation, more consultation, fewer nasty surprises, lower ticket prices
This is fair enough. But it’s also a good idea to balance the good with the bad, and to take a realistic look at how things work. Here are some issues:
1. Ticket prices.
As I explained in a previous blog, these are not as low as the headline figures suggest, although official prices probably are about 50% lower than in England, and much lower than at Barcelona or Real Madrid. However, they have been rising rapidly in recent years and there is also a vibrant secondary market. Unless you have privileged access, you will find it hard to get the cheap tickets, which “fans” can resell at a profit.
2. Higher attendance.
Many people like to point out that attendance per game is the highest in Europe, but that’s because they play fewer games. Total attendance is a better measure of popularity (a point I have also made before- to see why ask yourself who is more popular: a baker who sells 100 loaves of bread per day but is closed on Saturday and Sunday or a baker that sells 80 loaves per day but is open seven days a week? Surely the latter). Total attendance is about the same in the two leagues (around 13 million), and has been for a few years now.
3. Competitive balance.
One problem in Germany is the utter domination of one club. Spain has two giants, Italy three and England four or more, depending on the era, but Hollywood FC have no close rivals with 22 Championships in 50 years. A few years ago it looked like this issue was going away, and I remember a German friend boasting to me that 5 different clubs had won the title 8 years. However, now that Bayern have won 5 of the last 9 that claim is looking a little more shaky. And generally it has only been Bayern that has achieved sustained success in Europe – they have 4 of the six German Champions’ League victories (and another this year?). If anything their dominance seems more complete than ever. Now, for the record, I have long argued that the issue of competitive balance is not such a big deal, but those who espouse the German model tend to think that it is. In that sense, the Bundesliga is not a good model.
4. Insolvency and financial problems.
Judging from some press reports you might imagine no German clubs ever faced financial problems and that insolvency is unknown. But according to a recent article in Der Spiegl 32 German sports clubs filed for bankruptcy last year – and most of them would have had a football team. Currently Alemannia Aachen is facing closure, VfB Lubeck is looking for a bail-out from the league and Kickers Offenbach is looking for a bail-out from the local government (which might be illegal under EU rules). Just as in England, where all the insolvencies other than Portsmouth have been in the lower divisions, the smaller clubs struggle financially. And even the big German clubs have struggled. Mighty Dortmund had to be bailed out, in part by a loan from Bayern (imagine that Chelsea had only been able to play in the final last year because Manchester United had given them a soft loan ten years ago- all hell would have broken loose). Schalke 04 overspent and borrowed against future ticket income ten years ago and were only saved by a very generous sponsorship deal with the Russian sugar daddy energy company Gazprom.
5. Hooliganism.
Arrests at German games are running far higher than in England, and there is a widely acknowledged problem with flares (fireworks, not jeans). When a senior police officer voiced concern last year he was dismissed as a crank who was misrepresenting the situation. Hooliganism is always caused by a small minority but they have a big effect. Signs of denial are not encouraging.
6. Club licensing and management
“There are strong indicators that clubs systematically rely on creative accounting to inflate assets and hide liabilities. Prosecutors are currently investigating whether the representatives of Schalke 04 committed fraud by deliberately misstating the club’s financial situation and failing to enter insolvency proceedings.”
“However, the real situation seems to be even worse than reflected by the official data because the data gathered by the DFL are data ‘‘after’’ systematic financial window dressing. The true financial situation of German football clubs only surfaces when clubs signal that they cannot pay their bills any more.”
“The (partly hidden) financial crisis in German football is caused by substantial governance failures. The peculiar German club governance structure may be well suited to prevent integrity problems resulting from multiple club ownership or from ownership by ‘‘undesired’’ persons or entities. However, this effect comes at a price. It results in a governance vacuum that opens wide discretionary freedoms.”
These comments were written in 2007 by two German economists, Helmut Dietl and Egon Franck and published in the Journal of Sports Economics. In case you are tempted to dismiss these as the comments of irrelevant academics, Egon Franck sits on the UEFA Club financial Control Panel which will vet financial information relating to Financial Fair Play. Neither author is an advocate of the English system, but they are not blind to the failings of the German ownership system.
7. Safe Standing
This is one area where I think the German system genuinely is better, since many fans would prefer to stand and it can be done safely. But this just shows how regulation can create as many problems as it solves. Clubs allowed standing until Lord Taylor recommended that the government ban it. This was duly done, and now regardless of how many reasonable arguments the fan groups advance, none of the regulators that have the power to change things are willing to consider. Not, I think, out of pure cussedness, but because if by some freak chance an accident were to happen the regulator that changed the rules would likely lose their job.
What I conclude from all this is that the German ownership model is not in itself much better at meeting the needs of the fans than the models used in other countries. There are some advantages, but there are drawbacks too. In fact, competition between rival leagues operating under different structures have helped to maintain European football and make it the globally dominant force it remains today. Whenever people start to think that things can be done in one way and one way only, that way madness lies.
However, German football is a waking giant. It already has the largest sponsorship income of any league, thanks to the backing of the large German industrial corporations. If it became internationally popular it could generate a lot more broadcast income, and it has a wealthy population that is experiencing rapidly increasing ticket prices that may rise to levels we see in the EPL in the not too distant future. With large stadiums recently built or refurbished for a World Cup, they have the greatest revenue potential, and as we at Soccernomics can always be relied upon to tell you, in the end it is money that buys success. Financial Fair Play might accelerate that process if it creates a meltdown in the Spanish and Italian leagues, but that might be a sideshow. The interesting part comes when the giant is fully awake.
Perhaps the saturation of teams in England (9 in London, only counting clubs in the EPL and Championship) make it harder for English clubs to obtain commercial revenue. This is why global preseason tours are so important for big clubs to increase revenue. I think competitive balance will become even a bigger problem in Germany. For example, Bayern have bought Gotze and will probably have Lewandowski next season. These are the 2 best players from the 2nd best team in the Bundesliga.
There is no “hooliganism” problem. All power to the fans! Germany has one of the biggesr and best organized ultra cultures and that is very good. I hope they can stop the rising of the ticket prices and safe the 50+1 rule.
Sorry to be nitpicking but Dortmund’s win in 1997 was precisely a decade after last final with German club. Bayern lost to Porto in 1987.
I would argue that discussion about the ideal model reflects not just the political views about sports, but rather political views in general. Of course, by looking from outside and cherry picking what you like, it is always possible to present one system as ideal or just much better than others. I would argue that is the case with current craze about the German model. As any model, it has some good and some bad points. An obvious question-if majority ownership by members is so self-evidently superior to other models, why should it be enforced from outside and not left to the club members (often called fans, which, I suppose is mostly right, although I seldom notice that Real Madrid and Barcelona are described as clubs owned by fans,with them the term member tends to be more often used) to decide. It should also be more often noted that there is a very thin line between sugar daddies and sponsors, especially if the latter are simultaneously shareholders. So I would like to see more articles like this one.
While the Germany has a potential to have the best league, their ability to achieve it depends to a huge degree on future broadcasting income. Can they reach the English level on both national (I would say yes) but also international levels with really only one household name club? And will we with possible greater success in Europe see a greater hierarchization among German clubs, making Bundesliga, ironically, more similar to Premier League (at least in that respect)?
I agree with what you say about politics. the argument used by many is (a) the German model is better and (b) other club owners don’t have incentives to adopt this best model and therefore (c) they should be forced to. I think that even if a case can be made for (a), and as in most things I’m a sceptic, I don’t think it’s so much better to make (c) sensible. I also think those who advocate the German model fear that it will lose in competition- both on the field and off, unless it is protected from other models, especially the English model, and so they want action now to stop this from happening. They might be right logically, but I still don’t think that’s enough to justify regulation.
Nitpicking always welcome, accuracy is to be prized and we are all capable of error. I think in this case I’m right (but only just)- if the present decade started on Jan 1 2010, when does it end? Dec 31 2019 is the right answer I think. Likewise the decade before Dortmund’s win on 28 May 1997 started on 29 May 1987, two days after Porto beat Bayern. Dortmund were the 10th winner after Porto, so there is no way to include both Dortmund and Porto in a run of 10 consecutive finals- there’s more than a decade separating them.
I would argue every club should have the ability to chose a model they prefer. If it makes them less competitive, too bad, it’s their choice.
Nitpicking point- touche 😀
Although I would argue that the present decade started on Jan 1 2011. 😀
So I guess you imagine Bayern and Dortmund and Schalke couldn’t sell out 2 more home dates each, huh?
So you think Chelsea and Spurs couldn’t sell more tickets if they built bigger stadiums? In both cases we’re in the realm of hypotheticals, which is not generally a good way to measure popularity. However, it seems far more likely that in the next 10 years Chelsea, Spurs, Liverpool, West Ham and possibly a few others in the Premier League will be playing in bigger stadiums to sell out crowds than that the Bundesliga will expand to 20 teams and therefore have to ditch their treasured midwinter break in order to accommodate the extra games.
I actually used the long waiting list for season tickets for Spurs to explain your point from Soccernomics about potential rises of clubs form big cities. (although it seems to me that by using population figures mostly for area inside administrative city borders you missed some things. For example, this one https://en.wikipedia.org/wiki/File:Rhein-Ruhr-Region-LEP.png Using something like this would maybe be better http://en.wikipedia.org/wiki/Larger_Urban_Zones).
I don`t agree with your point regarding attendances. So if an English fan goes to 19 home games of his club – and a German fan only attends 17 home-gowns, the popularity of the Premier League is bigger?
“Many people like to point out that attendance per game is the highest in Europe, but that’s because they play fewer games.”
I would argue it`s the other way around – the Premier League gets a similar total attendance because they play more games.
Example regarding “total attendance”:
the NFL has a total attendance of 17 million (2421 games)
the MLB`s total attendance is close to 75 million (254 games)
http://en.wikipedia.org/wiki/List_of_attendance_figures_at_domestic_professional_sports_leagues
According to your line of argumentation the MLB is 4.4 times more popular in the United States than the NFL.
Yes, measured by attendance, MLB is more popular than the NFL. Clearly, we can ask if there were as many NFL games as MLB games then would there be as many people going to watch- my guess is not – but that’s speculation. NFL is a more popular sport on TV- TV viewing audiences are larger- but if you are serious that this is the right measure of popularity then you have to concede that the EPL is more popular than the BL- it has a far larger TV audience.
the point is that as a general proposition you cannot use an average as a measure of total size. So Switzerland has a higher average income than Germany, but Germany is a bigger economy. We could argue about whether, if the Swiss system of government were applied to a population the size of the Germany, the economy would be bigger than that of Germany, but that is purely hypothetical.
We can argue about whether total attendance is a good measure of total popularity, but the arguments you want to use to justify the BL being larger are all based on assumptions or claims that we can’t verify. For example, how do you know it’s the same people going every week? In Soccernomics I did some analysis to suggest that’s really unlikely, and that in fact most people go only occasionally. But if, for example, the same people go every week in Germany but different people every week in England- then which league is more popular?
and of course, this is without going into the obvious fact that attendance at the Championship is twice that of 2.Bundesliga. Are we comparing the entire system or just the top divisions?
“and of course, this is without going into the obvious fact that attendance at the Championship is twice that of 2.Bundesliga”
The average attendance of the 2nd Bundesliga this season is 16.944 – the average attendance of the championship is 17.493. That sounds to be pretty similar. Of course the championship has more teams and hence a higher total attendance.
“We can argue about whether total attendance is a good measure of total popularity, but the arguments you want to use to justify the BL being larger are all based on assumptions or claims that we can’t verify.”
I (and most of the sports media I follow, English/German/Polish) use the average attendance – which is as verifiable as the total attendance.
I agree with the rest of your article though.
I think you’re missing the point that it’s not just more games, it’s more clubs. Germany has a small concentration of clubs, with bigger stadia than in England- but as I say, you should expect that to change with expansion by Chelsea, Spurs, Liverpool, West Ham and others. But football has a larger audience than in Germany. Thus the top three divisions in England had a total attendance of 26.2 million this year, compared to only 19.8 million for the three national divisions in Germany. The three English divisions contain 68 clubs, the three German divisions 54. But since the English structure involved 1484 games and the three German divisions only 918, the average for Germany was 21,568, bigger than England’s 17,655.
Can you still seriously cling to the idea that just because the average is higher then three German divisions are more popular? That really is the same as saying that Switzerland is a bigger economy than Germany.
“Can you still seriously cling to the idea that just because the average is higher then three German divisions are more popular? That really is the same as saying that Switzerland is a bigger economy than Germany.”
You have a point there. But you initially claimed that “Many people like to point out that attendance per game is the highest in Europe, but that’s because they play fewer games. ” which is like saying the Swiss economy is smaller than the German one,but that is because they have fewer people. That is also hypothetical. I just don`t believe that the average attendance of the Bundesliga would be smaller if two more clubs of the size of Hertha Berlin,Cologne,Kaiserslautern or 1860 Munich were playing in the Bundesliga.
The third German division is certainly not on par with the third division in England as far as attentance figures are concerned, but it was just founded a few years ago and arguably needs time to establish itself.
Furthermore, the attendance figures in Germany are quite remarkable if you consider that all games of the 1st and 2nd division and half of the games in the third division are available on TV. In England many games of the Premier League are not shown on domestic tv (“TV blackout”). German fans always have the choice between going to the game and watching it at home or in a sports bar – English fans often have to go to the stadium if they want to watch their team, which obviously helps them to fill their stadia.
I have to admit: if I had the chance to I would delete all my comments on here, I would do it. Re-reading them, I come to the conclusion that they contain too much rubbish…Anyways, at least I have learned something new from your responses. Cheers.
Well, I wouldn’t say you were talking rubbish- it’s just that the received opinion is that German football is more popular because average attendance at the BL is higher than the EPL, I hope anyone who reads this thread will realize that such statements are nonsense.
From an economist’s point of view, we have been discussing an unobservable variable- the demand curve for football in Germany and England. What we would like to know is, at every possible price, how many tickets would customers be willing to buy. If we were then able to say that at any price demand is higher in the BL than the EPL, then it really would be more popular. Note first that demand is measured in totals, not averages. Second, note that since almost every game in both leagues is sold out then we can’t observe demand at any price- because presumably both leagues could sell more tickets.
This is where people get confused about low German ticket prices. This may be good for German consumers, but if 13 million go to German games and the same number go to EPL at 50% higher prices, that suggests that if prices were equal, then there would greater demand at EPL games than BL games (if you raised BL prices to EPL levels then demand would fall)- suggesting that it is the more popular league. But since we don’t know by how much demand would fall in the BL, it’s hard to say – perhaps they would still sell out at EPL prices.
So overall my point is not to say that the EPL is more popular than the BL from the point of view of going to the game (the EPL is clearly more popular than the BL on TV), but to say that those who blithely claim the reverse are some serious analytical errors.
Wonderful essay…I find it interesting to read about the economics of sports leagues outside the states. Over here, the EPL is the only European league they gets much attention, but really there is an abundance of interesting stories out there.
Steve