A stable financial structure, passionate fans, beautiful atmosphere, quality homegrown talent, mandatory academies, competitive league, and a strong national team. A lot has been said about the Bundesliga. Many have labelled it the ideal league and praised its ‘perfection’. While critics have opposed this theory, citing primarily the inability of German clubs to compete in Europe. So is it perfect? No. Is it ideal? Very much so, and we will try to look at that in this piece.
For years now the German Bundesliga has lived in the shadows of the “Big Three” leagues. This is not unsurprising as the UEFA Champions League is seen as the basis of measurement. A look at the history of the competition since its inception in 1992 shows that only 6 German sides have ever found themselves in the final. With only 2 of those taking Old Big Ears home (Borussia Dortmund in 1997 and Bayern Munich in 2001).
This understanding that only success in the Champions League can measure success is a shortsighted judgement. To truly measure and comprehend the success of a league, a more comprehensive approach must be taken. An in-depth analysis needs to be conducted. Football exists to sweep silverware, and in a myopic way, that measures success. Often the finances are forgotten, development of youngsters overlooked in favour of big money signings and over and above everything else, the principle of sportsmanship is ignored in this World Sport. The Bundesliga prioritises stability and development ahead of success. A template that every league, including/especially the Big Three could implement.
The structure of the Bundesliga ensures that the existence of a club is not overlooked, the interests of the fans not disregarded and also a guarantee that clubs will always be able to strengthen the national team with development of the youth through their academies.
So lets better understand the structure constantly being stated in the media, and the reasons as to why the Bundesliga could really be the ideal league.
In a football culture where the financial structure has more importance than ever before, the Bundesliga has made huge strides to ensure that clubs in the country aren’t forced to dissolve or seize to exist as we know them. From Liverpool, to Rangers to Portsmouth and even Chester City, the financial issues have stemmed from a lack of dedication from the owners and personal profits the main aim. Even the PSG and Malaga regime don’t guarantee long-term stability but instead put the club in precarious positions. Most leagues allow owners to takeover clubs without having to prove their commitment and devotion to the club and its fans. To see it in a simplistic view, owners takeover clubs on a loan (and not always personal wealth), put the club in debt and bail at the time of repayment. Fan ownership ensures that the clubs best interest are adhered to and the future existence of a club is secured. The 50+1 rule followed in the Bundesliga is as a result essential, to guarantee stability.
- 50+1 Ownership Model
The entire Bundesliga follows the 50+1 rule in its ownership model. This rule ensures that the fans remain the major stakeholders of the Bundesliga clubs i.e atleast 50% of the shares +1 will be held by the fans.
This particular law ensures that those that “call the shots” at the club, do so without compromising the clubs future. The personal interest of the fans is in harmony with the club. The question of owners overlooking the position of the club is avoided.
The problems that spout from outside investors is that they think like businessmen. Now the positives of that is that businessmen know how to run organisations, but they also exist to produce profits (in a personal sense), and look at the club as an investment. When the club hits a rocky period, they run.
Thats obviously not the case with fan ownership. It is proving to be a successful business model. Wealthy investors are also allowed to invest in the club, but obviously many don’t see it as a feasible move, as they don’t have as much control as they would have liked, big investments make no sense from their point of view.
The interest of the club is obviously secured but at times may prove to make the clubs financially weak. The clubs strive to ensure that they don’t spend over an above what they earn, so a situation of debt is evaded. But the lack of financial resources prevents attracting the best talents of the game. Bayern Munich are an exception who are able to compete with top European clubs, but much of the league does not have this liberty. Another issue is that, clubs from the lower leagues find it difficult to really grow and take it to the next level with the financial restrictions. Hoffenheim is one exception that had significant investment from Dietmar Hopp, that saw them appoint Ralf Ragnick and eventually earn promotion and ‘that’ terrific first season in the Bundesliga.
The Hoffenheim investment is a prime example of how private investors can make significant investments despite not having full control of the club. The only way an investor can prove his allegiance to a football club is by making investments without full control thus showing that he has the same interest as the fans. Loyalty allows for majority shareholding from private investors. Bayer 04 Leverkusen and VFL Wolfsburg are two clubs that have been exempted from the 50+1 rule as they are owned 100% by Bayer AG (the company founded the club in 1904) and Volkswagen AG respectively. One can interpret that if other private investors show this loyalty and best interest of the club in their plans, a special exception can be made once more.
The 50+1 rule has come under some scrutiny as well. Martin Kind, Hannover 96′s President was fostering abolishing the 50+1 rule citing that this was the main reason foreign investors were disheartened from investing in German clubs and this made it difficult for them to compete. This motion was put to vote, out of the 36 clubs that voted (i.e. from the top 2 divisions of the country), 35 voted against it. While Martin Kind’s claims are not completely wrong, one cannot deny that the prevention of sugar-daddy like owners makes the Bundesliga a fair league, ensuring that various clubs are able to compete for the title and there is a prevention of domination (although Borussia Dortmund and Bayern Munich have been the more successful clubs in the last 2-3 years, the former having minimal investment and emphasising on developing the youth).
So the 50+1 rule although may have a couple of drawbacks, it can be seen as a sustainable and stable business model for the future of the club. The most important threat to the existence of a club- debt accumulation through narcissistic investors- is avoided. There are various other positives of this business model, emergence of homegrown talent, competitiveness on the domestic stage etc, these will be looked at in the latter part of this series.
- Compliance with Financial Fair Play
The 50+1 rule allows German clubs to comply with the FFP rules. It restricts clubs from spending lavishly, the positive of which is that teams will spend within their means. Clubs in the past (Dortmund specifically) have gone out and spent a fair bit without actually having the money, this put the club in a precarious position. Something that happens often in other leagues. The FFP is aimed at ensuring clubs do business safely, from the financial point of view. But that aspect is already covered in the Bundesliga. The transfer fees and wages are also modest, while this prevents clubs from making big money signings with lucrative deals, it once more makes certain that the clubs don’t run into trouble with finances. It therefore ensures revenue based expenditure rather, completely avoiding any form of debt accumulation.
UEFA is trying to ensure a self-sustenance model, prevention of inflationary prices in the football market, developing homegrown talent, a settled long-run sustainability model ensuring not only success in the present, but more importantly stability in the future. These are the primary objectives of UEFA’s Financial Fair Play plan:
• to introduce more discipline and rationality in club football finances;
• to decrease pressure on salaries and transfer fees and limit inflationary effect;
• to encourage clubs to compete with(in) their revenues;
• to encourage long-term investments in the youth sector and infrastructure;
• to protect the long-term viability of European club football;
• to ensure clubs settle their liabilities on a timely basis.
One can see that all these aspects are already covered by the financial model of the Bundesliga.
- Licensing System
There is already a financial security system in place in the Bundesliga. The DFB (Deutsche-Fußall Bund) strives to keep a check on all the clubs. Every club has to be given permission to participate in the Bundesliga prior to the start of every season. The DFB does a due diligence on every club before granting permission to participate.
Every club has to submit their financial records to the DFB by 15th March. This contains the data for the previous year and their estimates for the forthcoming season. Once the material is reviewed and the DFB satisfied that the club will not run into any trouble, especially that they wont be threatened by insolvency, they are granted a license to participate. Other aspects are also looked at such as outstanding loans, positive or negative liquidity etc.
There are various conditions under which a license is granted. Obviously if everything is in check the clubs are granted licenses unconditionally. But in certain cases licenses are granted based on certain conditions, for example in the case of debt reduction. In such a case the DFB may grant a license but deduct points from the club, or even charge fines. Sometimes clubs are let off with a warning, suspended for a few months, and in extreme cases, denied a license completely. Arminia Bielefeld were in constant trouble with finances, and in 2003 when in the second division, they were deducted 4 points and fined €50,000.
- Revenue and Sponsorship
Every year Deloitte publishes its Money Leagues and Football Finance reports that stands as the best source of information for fans from the financial sector. The records proved good reading for the Bundesliga.
The table above shows the total revenue of the 5 biggest leagues in Europe (excluding transfers). Had revenue from transfers been included the Bundesliga would fall just short of the €2billion mark.
The Premier League maintains a strong position at the summit and more than half the income of the English league was through the tremendous TV deals. €1.3billion of its €2.5billion revenue came from TV revenue, this gave it a significantly larger gap from the Bundesliga. The Bundesliga generated just €519million from broadcasting, the lowest among all the top 5 leagues.
Despite falling fairly behind in the Broadcast Revenue field, the Bundesliga manages to display a good amount of total revenue. The Bundesliga still remains a fairly unknown league, and the above data is a reflection of it. The Big Three leagues remain significantly popular around the globe as compared to the German game. One can say this is also due to their lack of success in the Champions League and absence of houesehold names. This however could change as the Bundesliga (both the top 2 divisions) signed a deal with Sky Deutschland (starting from the 2013-14 season) that will show an increase of more than 50% in revenue. And with FFP soon taking full effect, the sustainable Bundesliga model will further be helped by this increase and allow German clubs to compete with the top clubs. That above table too would have bee alot different had it not been for the two Spanish giants. Barcelona and Real Madrid form a significant part of the TV revenue (and income in general) with their TV deals.
Another look at the Deloitte Money League 2012 shows good reading for Bundesliga clubs in an individual sense. Out of the clubs making the top 20 list, 4 German clubs make an appearance (Bayern Munich, Borrussia Dortmund, FC Schalke 04 and Hamburger SV). While Werder Bremen and Stuttgart are not far behind. Schalke will be the happiest as they made a top 10 appearance for the first time, primarily due to their semi-final appearance in the 2009-10 season.
The Premier League may be running away with the revenue (for now) but Bundesliga is the most profitable league among the top 5. They earned an operating profit of €171mil, massively higher than the next best in that group- the Premier League with €75mil. Proof that the financial model is working and is in tune with the UEFA’s FFP . This can be telling if the Bundesliga is to compete on a larger scale in the coming years.
Other than the obvious choices, a large portion of the Serie A and La Liga clubs struggled in getting sponsorship deals. The Bundesliga clubs were able to compete fairly well. Once again had it not been the mega deals done by Barcelona and Real Madrid, the Bundesliga would have been comfortable in their 2nd spot in terms of sponsorship.
In terms of shirt sponsorship the Premier League were the winners with €128million but the Bundesliga was right behind with €121million. The next best league is the Serie A at €79million. The La Liga is at €62million, but a staggering stat is that Barcelona and Real Madrid contribute €53million of this. When an average is taken, the Bundesliga edges it €6.72million to €6.4million compared to the Premier League with the rest a fair gap away.
But when we go into more detail with individual clubs, it can be seen that the Bundesliga is more profitable on the whole. Only 4 clubs out of the 18 have a sponsorship deal below €4million. Compare that to the Premier League and 9 clubs (nearly half the number) are below the €4million mark. And when you take a look at the Serie A, the two Milan clubs are on top but they are still behind the top 4 shirt sponsorship deals in the Bundesliga.
Another important note is that most of the Bundesliga clubs have shirt sponsors for more than 3 years. In a market where shirt sponsorship could become an issue soon, its important that teams secure a long term deal. Most of the shirt sponsors of German clubs are well established, and none from the betting or alcohol industry. Many experts believe that sponsorship from such companies is not stable.
Matchday revenue as a result of their average attendance records and low prices is another aspect to report. The Germans lead with €816mil commercial revenue. This will be discussed in the next part of the series (a less financial part).
Final Note on the Financial Structure
The Bundesliga is definitely growing in the financial side of things but Premier League remains their main benchmark. La Liga is the next closest to the league, but the Bundesliga is effectively competing with only Barcelona and Real Madrid. The Serie A is going through a difficult financial period, with clubs struggling and having already knocked them out to the running for 4 spots in the Champions League, competing with them financially is not a concern. While the Ligue 1 has always been lagging behind. With the Financial Fair Play taking effect, the Bundesliga will be the main beneficiaries and could find themselves as the dominant league before you know it.
View the second part by clicking here.
This is the first part of a series, stay tuned for the next in the coming few weeks.
Picture credits: wikimedia.org, footballstryder.wordpress.com, tus-lutten.de, hoffenheim24.pl, guardian.co.uk