A few days ago, when we were negotiating his contract as manager of our latest venture CE Sabadel FCl, Toni Seligrat said to me: "Oh my God how much has this changed, not so long ago managers were negotiating new contracts in a Director’s personal office, full of smoke and in the middle of the night, and often with proposals of under the table payments and other very creative clauses".
In fact, at the end of the first decade of the new century, club managers and owners were still making important decisions without the adequate experience or a team of experienced professionals on their side. And the numbers of the football business couldn’t be any more disappointing. Nearly €1,6bio of annual losses in European clubs, 19 out of 20 LaLiga clubs generating losses, accumulated debts in Europe of more than €7,6bio and recurring player complaints for non-payment. Football had hit rock bottom and conventional investors were conspicuous by their absence.
It was then that the different bodies that govern football business rolled up their sleeves, designing, approving and executing several initiatives that in the end have contributed decisively to the spectacular turnaround that the football industry has experienced. Let's elaborate on that.
6 new principles. 6 big changes
To begin with, a series of new rules (Principle 1: Regulation) were approved (or updated), a bit controversial in some cases. Let’s have a quick look at the most important ones:
UEFA’s Financial Fair Play: It entered into force in the 2011/12 season and its main objectives are, on the one hand, to prevent clubs with wealthier o
wners from having an advantage over the rest and, on the other hand, to avoid any over-spending which is not covered by ordinary income. The regulation establishes a limit of losses that can be accumulated in periods of 3 years, and its non-compliance carries with it economic and sports penalties.
UEFA Club Licensing: It establishes that clubs that qualified for European competitions must comply with a series of parameters of financial strength to play continental tournaments.
Directors and Owenrs test (English FA): Test on people who intend to buy football clubs in England to address issues such as not having the necessary financial strength, being one of the main shareholders in other clubs or having a criminal record. In Spain, there is a similar regulation under the jurisdiction of the Consejo Superior de Deportes (CSD).
Financial control of LaLiga: In line with UEFA's financial fair play, this control - in which the CSD also participates - sets strict financial criteria for clubs to meet, including a salary cap based on income generated. It also seeks that clubs do not spend increased revenues with new players and that a large part is devoted to debt reduction instead.
Article 192 of the General Regulation of the RFEF: It establishes the relegation of any clubs that are not up to date on the payment of wages, except if they have previously agreed with the players some kind of postponement.
Royal Decree on the commercialization of TV rights: Approved in May 2015, centralization of the sale of TV rights and a more equitable distribution of income (whereby bigger clubs accept a redistribution that favours smaller sides) has marked a before and after for Spanish football and has been the biggest achievement of LaLiga President Javier Tebas.
From now on, rules are to be followed
Control over compliance of rules has been rather lax historically, and when clubs have skipped regulations, it has never been treated as a major issue or a big offence, with competent bodies looking the other way and accepting club’s promises to not do it again. But this situation has also changed radically, following clubs very closely to ensure that they respect the rules of the game (Principle 2: Strict Control), and the relentless execution of sanctions derived from bad practices (Principle 3: Punishment).
To provide a couple of illustrative examples in relation to the regulations set out above, football clubs must now be audited by UEFA to prove that they comply with financial fair play, and report their accounts on a quarterly basis to LaLiga to prove that there haven’t been any deviations from the budgets approved by the economic control.
But they must also abide by the sanctions without question, or if they do, assume that their chances of obtaining forgiveness are non-existent. Take as examples the penalties imposed to PSG for falling outside the parameters of losses defined by financial fair play (in the form of a fine and a limitation on the number of players that could be registered for the Champions League), Premier League's non-approval of the Chinese investor who intended to buy Southampton (as Lander did not pass the test for new owners for judicial processes in China), the administrative relegations of Elche and Murcia (supporters’ complaints and protests being completely ignored), or LaLiga denying Getafe to register Pedro León in August of 2014 because the club had already exceeded its salary cap.
More equitable distribution and greater transparency
The times when the most powerful teams would receive most of the revenue and took decisions on behalf of the majority are also part of the past in Spain. Thus, in any LaLiga decision, the vote of clubs like Alcorcón or Lugo has exactly the same weight as the one of Barcelona or Real Madrid (Principle 4: Democracy), accepting the latter a centralization of the sale of TV rights, which has drastically reduced the percentage of total revenue being distributed between the two biggest clubs (going from about 50% to about 20%). All of this taking place within a new framework of transparency, where we are getting used to having more visibility on the ins and outs of the business of football, such as having visibility on the commissions collected by agents or having access to football clubs’ yearly accounts via their websites, where they are published in full detail (Principle 5: Transparency).
Finally, the implementation of mechanisms imported from other leagues, such as the relegation parachute payments (now possible within the framework of the increase of TV revenue), means that minor teams can safely invest in signing new players when they are promoted, knowing that they have financial protection in case of being relegated again (Principle 6: Protection). Other protections or aids mean that, for example, LaLiga often becomes a bank by lending mony to the clubs in puntual periods of lack of cash. Sanctioning clubs that don’t follow the rules is also a way of protecting those who do.
Football has changed. LaLiga living its best moment
The implementation of the 6 principles that we have analysed today - Regulation, Strict Control, Punishment, Democracy, Transparency and Protection - has had a decisive influence in the transformation of the football industry, which in recent years has become profitable, attracting again investors from all around the world. Indeed the picture in football finance has changed drastically. Debt in Europe has been reduced from 65% to 40% of sales, and in Spain debts have fallen by 25% over the last 4 years. LaLiga Santander's revenues are at an all-time high (almost €2,4bio in the 2015/16 season), mainly supported by the growth in TV rights after their centralization, and we have had 4 consecutive seasons of joint profits in LaLiga Santander. Thus, we went from a scenario where 19 teams out of 20 where in losses, to 19 out of 20 being profitable, and even LaLiga 123 has begun to have profits. If we also bear in mind this season’s stadium attendance records (more than 14 million in the 2016-17 season, 71.5% of the capacity), we can clearly state that LaLiga is in the best moment of its history.
All this considered, it shouldn’t come as a surprise that in the last 2 years there have been acquisitions of football clubs worth almost €2bio all around Europe. And more importantly, it is not just Asian mogul in search of popularity anymore, but also investment companies that are now finding in football the profitability they have been searching for in other sectors for years.
Football negotiations are no longer played in restaurants with drinks and cigars. They have moved to the "city" of London with detailed Powerpoint presentations prepared by the new professionals of football industry... who will at most have one gin and tonic in the popular “After work” format.