Manchester United’s Champions League quarter final at Bayern Munich gave the world an opportunity to have a close look at two very different financial models of how clubs should operate in order to obtain long term viability. Many calls have been made for English clubs to emulate the way that clubs like Barcelona and Real Madrid are run, but Germany’s Bundesliga provides another alternative which should at least be given close consideration.
While in England the talk is of takeovers by multi-billionaires, supporters of Bundesliga clubs like Bayern Munich are safe in the knowledge that such a scenario is unlikely to ever unfold at the Allianz Arena. The system by which Bundesliga clubs are regulated, with an emphasis on strict financial rules and licensing. This results in Bayern being debt free, allowing the club to offer some tickets for as little as 12 euros, a third of the ticket price to watch a Barclays Premier League (BPL) game.
50 + 1 Model:
At the heart of the German model are the fans, rather than owners or shareholders. Until the late 1990s all Bundesliga clubs were 100% owned by members – fans who pay to be part of the club. However, the clubs recognised the need to compete with their European rivals and giving fans full autonomy might not have been the best way to do it. So some of the clubs, led by Bayern Munich, spun off their professional football “sections” into outside limited companies separate from the parent club to attract investment.
Under Bundesliga rules, members must own 50% of the shares plus one extra vote. This is the so called 50+1 model, which makes it impossible for private investors to take over a club. It is this model that many view as the best in Europe – and a far cry from the Premier League, where most clubs are struggling with debt.
Lizenzierungsordnung:
A Uefa report in February revealed that the total debt of Premier League teams, £3.4bn, is greater than that of the rest of Europe’s top flight clubs put together. And although the Premier League clubs make up more than half of club assets in Europe, Manchester United’s debt is almost more than £150m higher than that of the 36 clubs in Germany’s top two divisions. That is because Bundesliga clubs follow a set of rules known as the Lizenzierungsordnung, where they must submit information about their budgets and expected expenditure, and prove they are financially stable in order to play in the league.
There are also check ups during the season and licences can be withdrawn. Second Division club Arminia Bielefeld were deducted four points by the Bundesliga for breaching the terms of their licence after suffering a financial shortfall and were fined 50,000 euros (£45,000) in February for the violation. A tough punishment but the club is still in business and financially stable today.
The Price of Prudence:
Arguably, this financial prudence has come at a price, having limited the ability of German clubs to compete with their big spending English counterparts who can offer astronomical wages to players in the Champions League. Bayern were the last German side to be crowned Champions of Europe in 2001, having lost to United in dramatic fashion two years earlier. English clubs have triumphed twice since 2001 and appeared in the final on six occasions in the last decade, a period in which only one other German club has reached the final, Bayer Leverkusen losing to a Zinedine Zidane inspired Real Madrid in 2002.
There are also concerns over how strictly the rules are enforced. In recent years, Borussia Dortmund have racked up considerable debt following their glory years in the Champions League. Meanwhile, their neighbours and fierce rivals, Schalke 04, are currently feeling the pinch with stories coming out in the the German media of tight financial constraints and even talk of bankruptcy.
Final Thoughts:
So the 50+1 approach to club ownership is not necessarily a guarantee of good governance and Bundesliga clubs are still quite capable of shooting themselves in the foot. Furthermore, it has very vocal critics with Hannover 96 President Martin Kind leading the charge. He argues that Hannover would be well placed to compete for honours and thereby make the Bundesliga more competitive, if he could attract more investors by giving them a larger slice of the pie.
There are also exceptions and anomalies. Bayer Leverkusen and the Wolfsburg club have their genesis as factory clubs owned by Bayer and Volswagen respectively. Hoffenheim’s rise through the leagues to the Winter Championship in 2008 was funded entirely by former player and software billionaire Dietmar Hopp. It still remains to be answered if any of the three clubs would survive if the vast resources from their key sponsors were to withdraw their funds.
Having said that, the system does seem to work. Just recently in the 2008-2009 season, the valuation of Bundesliga clubs broke the 2bn euro level for the first time in its history and secured a European high of 573m euros in sponsorship. Furthermore, ticket prices are affordable, averaging 20.79 euros a match and for the seventh season in a row, average attendances have exceeded 42,000.
We may never see English clubs adopting the 50 + 1 model and handing power over to the fans as such a system is unheard of in England. However, what is more important for them in the short term is the need to be financially responsible to prevent themselves from going into administration. Leeds United and Portsmouth have tasted the bitter pill of bankruptcy and prominent clubs with large fan bases such as West Ham and Liverpool have come close to financial ruin. The reliance on billionaires doubling up as sugar daddies for the clubs has to stop and for that to happen, the Football Association has to seriously consider their financial regulations.
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