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Alternative Ownership Models on Display in Soccer

2012 October 29
by Skip Sauer

It’s been a week of interesting contrasts in North American and European soccer, particularly with regard to issues of control and ownership in the game.  In MLS, an attempt to keep teams on sound financial footing is the alleged reason for resting substantial authority over player contracts in the league office.  But a story in the Toronto Star — Toronto FC’s hands tied by meddling MLS — claims that MLS rejected Toronto FC’s contract offer to Olaf Mellberg for rather mundane reasons, as if the defender was not flashy enough for the league’s marketing objectives.  If the Star’s take on this is correct, MLS refused to allow the club to spend its money as it saw fit, and not for the first time either.  Regardless of MLS’ motives, this is an interesting tussle between the rights of a franchise and the heavily unitized league entity.  If indeed player selection is to be based on part on league marketing objectives and not on a franchisee’s view of its best interest on the pitch, you can expect further  squabbles of this nature in the future.

Across the pond, it was a great week for German teams in the Europa and Champions League., where Bundesliga teams went 7-0-1 including high profile victories over Arsenal and Real Madrid.  Gabriele Marcotti contrasts this with the poor results for English teams, not just on the pitch, but in the stands and on the books.  Unlike MLS, both the Bundesliga and Premier League sit atop a pyramid system of  relegation and promotion from lower tier leagues, but there are important differences in ownership structure.  In England (and Scotland), pretty much anything goes (and has: see the turmoil at Leeds and Portsmouth, not to mention Rangers to the north, now nestled in the fourth tier of Scottish soccer).   Swashbuckling, debt-fueled ownership is ruled out in the Bundesliga, where majority ownership resides by rule in club members, who pay an annual fee for the right to govern the club.  This model appears to be working:

Last season, the average Bundesliga club drew approximately 45,000 fans per game to the Premier League’s 34,600. Part of it is down to bigger and often better stadiums, some of which were refurbished or built with public money ahead of the 2006 World Cup. But a lot of it is down to ticket prices, which are substantially lower in Germany.

The bigger crowds in the Bundesliga, coupled with the fact that Germany is a wealthier country with a more vibrant economy, allow clubs to attract sizable sponsorships and commercial deals. Indeed, according to Deloitte’s “Football Money League” report, in 2011 Bayern Munich’s commercial revenue ($230 million) was greater than that of global juggernauts like Manchester United ($148.2 million) and Arsenal ($66.2 million) combined. And even a team like Schalke, huge in its own way but hardly a household name beyond the cognoscenti, earned more commercial revenue ($117.7 million) than global soccer brands like Chelsea, Liverpool, Tottenham or Manchester City.

To be sure, as Marcotti notes, the global TV rights for Premier League games lead the chasing pack by a huge margin.  But what has all of that TV money done for the Wigans and Wolves of the world?  It will be interesting to see how these two forms of ownership fare in the next few decades, in what is ultimately a highly competitive marketplace.

3 Responses
  1. Dan permalink
    November 7, 2012

    Comparing the Premier League and the Bundesliga is interesting but what if you include La Liga? Real Madrid and Barcelona, as valuable as Man U and Arsenal, are clubs that spend like they are owned by billionaires. They both have racked up losses and debt and it was only through some fishy financial moves involving the city of Madrid that Real was able to pay off their debt ten years ago. Barcelona will probably need the same help in the near future.

    La Liga is behind the Bundesliga and Premier League in attendance but is considered the best soccer league in the world (though their best players are from Portugal and Argentina). Barcelona and Real Madrid don’t make a clean comparison easy between the Premier League and the Bundesliga.

  2. Steve permalink
    November 9, 2012

    Gabriele Marcotti’s quoted piece confused me. What is “commercial revenue”? Does that mean revenue from sponsors? It is flat out impossible that any German team is more valuable for a sponsor than say Man U which is televised weekly into every corner of the globe. For a global brand, any rational advertiser would be prepared to pay more to be shirt sponsor of Manchester United vs Bayern Munich.

    If it is not irrational behavior, and instead German consumers purchase the products of the brand on their teams shirts at a much higher rate than British (or global) consumers, then this is something in the preferences and culture of the German people that is not related to the ownership model.

    What the ownership model does do is effectively precludes FDI, and thus artificially lowers investment into the clubs. It is the investment into the Premier League clubs that allow them to use economies of scale to push into every corner of the globe.

    Since the demand for match day attendance at Manchester United includes fans flying in from Norway and Thailand where the Premier League is basically their prime time league too, the ticket prices for match day attendance will obviously be higher. With all else equal (and I realize they are not since Old Trafford had to be paid for, and Allianz arena government funded), Man U will have higher match day takings. Once you admit the fact that German stadia are bigger and combine that with the decreased international demand it is obvious that the tickets will need to be cheaper in Germany to fill their stadia. Marcotti has the cause and effect backwards.

    Then add in the share of TV rights that the ownership model allows to be higher, and it is quite clear that the ownership model of Man U. allows far higher revenues than Bayern Munich. To pull out some vaguely defined “commercial revenue” is disingenuous.

  3. Nick Evans permalink
    November 12, 2012

    @Steve – you might find your confusion about “commercial revenue” addressed if you read the Deloitte’s report to which Marcotti refers. In summary, though, they define commercial revenue to include everything that’s not broadcasting or match-day/competition revenue, so it covers sponsorship and merchandising. For some reason, the likes of Adidas and Audi seem content to given Bayern more than Nike and AIG give Man U. I’m not sure that Man U have necessarily been able to monetise the many people in southeast Asia who watch their games on TV then buy a knock-off t-shirt from the local market. Whereas Bayern can get more money from their German fans than United can from their English ones.

    @Dan – is it possible to consider La Liga as a single entity in this sort of comparison? There’s a much greater disparity between the top two and the rest in Spain than there is elsewhere, particularly as each team sells its own TV rights at present.

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