August 8, 2016
The Premier League: built on foreign foundationsPosted in Sunday Business Post · 79 comments ·
The footballing jamboree that is the Premier League kicks off next week. This is its 25th year. For those of you who remember, 1992 was a significant year in football as not only did it mark the beginning of the Premier League, but it was also the year that Leeds United won the last English First Division league.
The subsequent plight of Leeds United is a sorry tale of footballing boom and bust that is eerily reminiscent of the Irish boom and bust. It is a similar story of great hopes, expectations and debts, coupled with lamentably poor management and poor performance behind all the hype, leading ultimately to bankruptcy.
Sport is such a significant part of our lives, and it is interesting to look for parallels between how sport (especially football as it is the most global) is run and the way economies are run. Are there deep cultural forces that determine the way clubs are run in certain countries and the way the general economy operates?
Before we talk football, let’s look at Wimbledon. This is still one of the four top tennis tournaments in the world based in England where no English players ever seem to do well.
Every two or three generations, Britain produces someone like Andy Murray. But if you were to go down the list of winners in either men’s or women’s tennis, very few British names are on either trophy. Wimbledon puts on a great tournament, hosts the best in the world, gets the money and the glory, but it has almost no impact on local tennis.
For years, the City of London was regarded as the “Wimbledon of finance”. The City, like Wimbledon, hosted the world’s best financial players, preserved its prestige and surpassed even New York as a financial centre. The vast majority of the players were and still are non-British; London prospered without the participation of local players. The Wimbledon model of development understands that, in a globalised world, being a good host matters.
Now the Premier League is replicating this Wimbledon model, and unfortunately for English football fans, this fact is evidenced by the awful performance of England at the Euros. A team full of remote, headphone-wearing Premier League superstars epitomised more than anything the disconnect between the Premier League and the local game. England may have the most commercially successful league in the world but, like Wimbledon, it will soon be a hosting service for foreign talent rather than a conveyor belt for local players.
The way things are going, there will be very few English players in the starting XI of Premier League teams. But this probably won’t diminish its allure.
The Premier League is the most watched football league in the world, with a global audience of close to five billion in more than 220 countries. It is a global brand that happens to be located in England.
This global dominance has allowed clubs to increase their commercial revenue dramatically. New TV revenue and commercial income allows the clubs to pay enormous sums in transfer fees and players’ salaries.
One thing is startling and it is that despite Premier League clubs not competing at the top end of the Champions League over the last three seasons, they continue to dominate the list of wealthiest clubs in the world with eight in the top 20. This allows them to continue to compete at the top end of the transfer market.
Another significant factor in the English game is the dominance of the single big shareholder, who finances the club. Think Abramovich and the rest.
Now contrast this British hosting model of football – which reflects its approach to other big industries that flourish there like finance, advertising and publishing – with the German football model.
Germans are very proud of their Bundesliga. Nowhere is that pride more justified than in Munich, where Bayern, the most successful German football club, reigns supreme.
Bayern is a proper club, with a wonderful history. It won the German league at a canter. It has great players and an open, attacking and exciting approach to the game. Bayern recruits local talent, as well as a smattering of foreigners. Its recent greats, such as Philipp Lahm, Bastian Schweinsteiger and Thomas Müller, are all local lads from the famous Bayern youth academy.
Like the German economy, the club is well run and its new stadium, the Allianz Arena, is an architectural gem owned by the local municipality, which rents it to Bayern and its rival, Munich 1860. The 70,000 capacity stadium cost €340 million to build and is used every week. Contrast this with the Aviva that cost €410 million to build, holds fewer people and is hardly ever used.
Financially, Bayern operates well within its means, much like the German economy. Its accounts are perfect and the players are paid well – but not extravagantly. Bayern is all about tradition and continuity; the planning is meticulous, all the way from youth development right up to the professional first XI.
The club is owned by the fans and operates like a tight cooperative. If it were a country, it would be running a massive current account surplus with the rest of the world, have a huge savings ratio and low inflation – not unlike Germany.
In contrast to the English clubs where operating shortfall is usually plugged by the largesse of an oligarch, German teams are not allowed to go into debt. Clubs must be financially accountable. A full set of documents must be submitted each year before a playing licence is given. It is exhaustive, covering assets, receivables, cash and bank balances, liabilities and provisions, current overdraft facilities, loan commitments, projected and current profit/loss statements and cash inflows and outflows.
These documents are judged by the German football league. All clubs must inject money into a fund to make sure that if a club does get into difficulty, even after all this scrutiny, it won’t go bust. No Bundesliga club has experienced an insolvency event since the league’s creation in 1963. By way of comparison, there have been 92 in the top five divisions of English football since 1992.
Ticket prices are kept low: around €10 a game. The fans feel real ownership. The Bundesliga is the best attended of the big football leagues in Europe, with an average attendance of 45,726 in 2010/11 – 10,000 more than the Premier League.
And of course, the German national team is typically a finalist or semi-finalist at major tournaments, unlike the faltering Three Lions.
When you look at the difference between the “hosting” high-finance model of the Premier League and the “local” frugal model of the Bundesliga, it’s not hard to see that football reflects deeper cultural real and economic norms.
Now I realise you can read too much into these little exercises, but as you settle in next weekend to watch the Premier League, just consider what the English football league says about post-Brexit England.