The Business of Sports / A Call for Fiscal Sanity

While soccer teams are hemorrhaging money, the head of UEFA has a simple plan that would solve the problem of mismanagement that has plagued European clubs

The widespread assumption is that it is impossible to turn a profit in Israeli soccer. According to this line of thinking, only philanthropists, soccer-crazed risk-takers, attention-starved oligarchs flush with cash, or Maccabi Haifa owner Ya'akov Shahar dare enter this swamp. But Israel is not alone in this regard. Even in Europe, it is difficult to make money from the sport, though not always for the same reasons.

A study commissioned by European soccer's governing body, UEFA, found that half of the continent's 650 clubs are in the red. Moreover, one in every five teams is deep in the red - that is, their expenses are at least 20 percent greater than their income.

The figures show that the average revenue generated by individual clubs - namely through sponsorships, television broadcasts and ticket sales - rose last year by 10 percent. Yet the operating expenses also increased by 11.5 percent, while player salaries skyrocketed by 18 percent. For many teams, players' wages eat up 70 percent of the budget, which in itself represents a major problem.

A large number of teams that are losing money are small-to-medium sized clubs, yet there are more than a few big clubs whose financial health is in jeopardy. In Spain, for instance, 17 of the 20 clubs in La Liga, the top flight which includes Barcelona and Real Madrid, are in debt. The situation in England is quite similar. While Real and Barcelona generate tens of millions of euros in revenue annually, thus enabling them to cover their debts whenever they acquire new players or seek to renovate their stadiums, for other teams this is not so.

Some clubs, like Manchester United, are extraordinarily wealthy, yet they also suffer from abject mismanagement. The Glazer family, the American-Jewish owners of England's most celebrated team, bought the club by taking loans at a highly exorbitant rate of interest - 14.5 percent. Now, despite handsome profits and the sale of Cristiano Ronaldo last summer for a cool 80 million euros, most of the club's revenue is used to pay back the loans.

The situation is far more difficult for a team like Liverpool, because it lacks the revenue streams that would enable it to cover its loans. If, as it seems now, Liverpool will not make it to next season's Champions League (which provides a comfortable financial umbrella and a handsome reward to teams that do well), then its financial straits will be even more dire.

Smaller clubs who are struggling financially are liable to declare bankruptcy, which is exactly what happened to Chester City, a lower-tier team that was dissolved this year. A similar outcome could befall heavily indebted Portsmouth, the Premier League side that will be relegated to the second-tier Football League Championship next season and is currently under administration.

What can be done? Fan ownership of teams seems like a magical, equitable, social-democratic solution. But is it efficient? Don't be so sure. Even if the idea works well in Germany, and even in fan-owned teams like Real Madrid and Barcelona, their management structures are still oligarchical in nature. Debts are still accruing and the clubs are hampered by fiscal imbalance.

Michel Platini, the wondrous former soccer player who is currently president of UEFA, would like to enact a rule that would require clubs to operate strictly on the basis of their budgets, much like a household manages its bank account. The fundamental idea behind it states that teams can only spend money that they earn. That means no irregularities or overspending (except in special cases involving stadium matters), no presents from the likes of Arcadi Gaydamak, Roman Abramovich and Arab sheikhs. Just balanced budgets.

The plan arouses opposition from those who claim to champion the cause of free market economics. Teams are also fearful that players - particularly the star players - would have to accept lower salaries. Yet more and more people are gradually acknowledging that Platini is right. Perhaps this new policy would restore player salaries to a sane level. It would also dissuade oligarchs from entering the soccer business and treating their teams as their personal toys. Perhaps this would mean the end of meteoric phenomena like Chelsea and Manchester City, overnight sensations who cause the market to rumble. Platini's idea is so simple, and it must be adopted.