This is an article I wrote for the FT which appeared in yesterday’s edition. They kindly gave me permission to reproduce it here.
This will be the last year of European football as we know it. The “open” system by which the sport has long operated is now coming to an end, and will quickly become a “closed” American-style system.
This is all down to Financial Fair Play, the new regulatory system adopted by Uefa, European football’s governing body, which will bite next year. Instead of just tallying goals scored and conceded, fans will have to learn complicated rules about “break-even” and club licensing to work out who their opponents will be. Sporting merit will no longer be the sole criterion for success in competition.
But this openness has also caused financial chaos. The last time anyone said that English football’s finances were healthy was the 1950s, when the players’ pay was capped at £20 a week and less than half of the population had a television. The same is true across Europe, where many clubs have fallen into cycles of extravagant spending, temporary success followed by financial disaster, retrenchment, frequent changes of ownership and the injection of new money.
Uefa tells us that in 2011, 63 per cent of clubs in Europe’s top divisions were reporting an operating loss and 55 per cent reported a net loss overall; 38 per cent reported negative net equity, and 16 per cent of club accounts contained a qualification expressed by the auditors as to the financial viability of the company. This is despite the fact that club revenues have grown at an annual rate of 5.6 per cent in the past five years.
So Uefa’s controls require clubs to break even, or face sanctions that could include exclusion from their lucrative competitions. But the regulations are complex and offer opportunities for litigation by disgruntled clubs. The rules will lack credibility if too many big clubs fail to meet the criteria early on. Will they all be barred? And what of the biggest names? Would any self-respecting fan want Barcelona or Real Madrid excluded?
Even so, this all brings Europe a little closer to the US, whose leading sports leagues have developed hugely successful championships based on a shifting bargain among franchise owners. Rules for sharing revenues and limiting player pay are designed to maintain a competitive balance between teams. Entry is strictly limited – buying into the National Football League or Major League Baseball will cost you upwards of $1bn today – and the rewards of this exclusivity are also huge. The leagues mostly give the fans what they want, and profit royally.
Europe is not there yet. Uefa has studiously denied that maintaining competitive balance between clubs is an object of FFP. Its plan, it says, is not to make sure that humble Crystal Palace has a chance to compete at the top of the English Premier League against Manchester United. And for good reason: the new rules are actually likely to ossify European competition and limit the potential for big clubs of today to be challenged.
Similar regulations are creeping in at national level. England’s Premier League now has a rule limiting wage bill rises to £4m a year for clubs already spending more than £52m. Of the league’s 20 clubs, 14 spend at or below this level, while the “big six” spend more than £100m – there are no plausible mechanisms for the smaller clubs ever to close this gap and compete.
But such ossification is a first step to a closed system – for which there are advantages. Well-matched teams are usually more attractive to watch than David and Goliath contests, however much we like fairy tales. There is more chance to see the biggest stars play each other in a closed system, and more potential for investment, whether in player training, stadiums or broadcasting.
But this is not football’s tradition. The open system of promotion and relegation has a romantic appeal, and makes for an intensity of competition US leagues sometimes lack. Moreover, financial chaos may have caused owners to lose money but almost never leads to the demise of clubs. As a system, the open model has been stable and attractive largely because of the gyrations of the individual clubs. It also limits the capacity of wealthy owners to leach large profits out of the game: no one is safe from competition.
It is ironic that Uefa, and many of those who lobby on behalf of fans, see the US system as anathema but seem to be doing everything possible to ensure its adoption. The Premier League welcomed another American owner last month, bringing the total to six, all of whom understand the two systems very well and are fully committed to the new regulation. They, at least, know where they are heading.