When Will Real Madrid and Barcelona Stop Being So Good?

Madrid and Barcelona don't like each other very much, but none of the other clubs in La Liga like either of them. No wonder they look so angry. (source: theaustralian.com.au)

In September 2011, Sevilla president José María Del Nido invited all of La Liga's teams to Seville to discuss their financial future. The two excluded clubs were Real Madrid and FC Barcelona, Spain's two biggest clubs by all metrics, left at home to pout like brooding, unpopular teenagers. Del Nido's message was clear: the big two were cannibalising the rest of the league, turning La Liga into what he called a “crap league -- the biggest pile of junk in Europe.”

Two years on, and little has changed. Before their Supercopa match with Barcelona, Atletico Madrid manager Diego Simone issued a damning verdict. “Madrid and Barcelona play in a different league, and this is a boring championship. We'll have to wait until there is a change in the share of television revenue, because this is a two-teamleague." 

Simone is not wrong. The imbalance in Spain's TV revenues makes feudal Europe look equal. Under the latest deal, the negotiation of which Del Nido was trying to influence, Madrid and Barcelona between them take 35% of all revenues. Atletico and Valencia then are allowed 11%, and 45% is to be divided amongst the remaining 16 clubs (the remainder is to be used for league placement payments and such). This means that Real and Barca both take €140 million, almost three times the receipts of Atletico and Valencia (€46 million and €48 million respectively), and more than ten times that of the majority of clubs (seven teams receive €14 million, one €13 million and two €15 million). By way of comparison, in the far more equitable Premier League (in 2011/12), champions Manchester City earned £60million and relegated Blackburn Rovers and Wolverhampton Wanderers earned £40 million from the television deal.

The reason for this disparity is that the league does not negotiate its TV rights collectively, as the other major European leagues – including the Premier League, the Bundesliga and Serie A – do. The result is that Barca and Madrid, the most popular La Liga teams by far domestically and internationally, have greater TV rights income than any other clubs in the world. According to Deloitte, Madrid earned €199.2 million in total from TV distribution rights, and FC Barcelona €178.9 million. By way of comparison, the next highest earners were Chelsea, who received €139.4 million (in a bumper year where they won the Champions League) and Manchester United, who earned €128.5 million in total.

Spain's TV deal thus gives Real Madrid and Barcelona a structural advantage over their rivals both domestically and internationally. This is not their only one. Both clubs enjoy status as 'membership clubs', allowing them to register as not-for-profit organisations and receive significant corporate and property tax breaks. In 1990 the Spanish government ruled that all clubs besides Madrid, Barca, Osasuna and Athletic Bilbao had to become limited companies, waiving their tax advantages.

The result of these two structural advantages is that Real Madrid and Barcelona are vastly wealthy. They are not just the richest two clubs in Spain, but the richest two clubs in the world: their revenues of €512.6 million and €483 million respectively are around €100 million greater than the third-richest club (Manchester United, €395.9 million) and almost double the eighth-richest (AC Milan, €256.9 million). No other Spanish teams make the top twenty; indeed, Real Madrid and Barcelona account for almost 60 per cent of revenues generated by the 20 first league clubs, an unbalance far greater than can be found in the other European leagues.

This wealth is, of course, reflected in their on-the-pitch dominance. The brilliance is easily visible to anyone who has seen the teams of Messi and Ronaldo play. Both clubs routinely win by four or five goals, and have been ratcheting up record points totals in consecutive seasons. They also regularly reach the last stages of the Champions League, with Barcelona having won the trophy three times in the last decade. Pep Guardiola summed up the Madrid-Barcelona duopoly as “fucking barbaric”.

It is no coincidence that the last time a team other than Real or Barca challenged for La Liga was Sevilla in 2006/7. This was the last boom year before the financial havoc of the 2007 recession. As the big two have risen, the rest of La Liga has slowly sunk into the mire of the Spanish economy. Javier Tebas, president of the Spanish football league, compares the football market to the housing market: “The sector became inflated. It grew through debts. Then the crisis brought an end to all this money – and strangled us economically.” Professor José Maria Gay de Liébana of the University of Barcelona agrees: “Football is largely a reflection of what has been happening in our economy, with people spending way beyond their income, relying on fanciful growth forecasts and ending up with unsustainable debt and an asset pricing bubble.”

Football's asset pricing bubble has left much of La Liga in disarray. Many clubs have been through periods of governmental administration; almost all are heavily in debt. Professor Gay estimates that the debt of La Liga clubs was €3.5 billion, with half of them having negative equity (i.e. their reported liabilities are greater than their assets i.e. they're fucked). Around €700 million of this debt is owned in taxes to the Spanish government. With the bursting of the bubble, and the continued struggles of the Spanish economy, these debts have become a heavy burden for the league. For every club, excluding the big two (and Athletic Bilbao), footballing glory is no longer a target. They can only aim for survival.

Despite these problems, the clubs' chances of continued existence have improved recently. The first was the introduction, at the time of the last TV rights deal, of parachute payments for relegated clubs. Money would now be paid from the TV deal of the top division to those teams relegated into the second one, in order to help them deal with the far harsher financial realities one rung down the ladder. Francisco Roca, the chief executive of La Liga says that “If you get relegated in England, it is difficult. In Spain, it is catastrophic. You don't even get 10% of the revenue you used to have. We have doubled that amount, but we have to do more."

The arrival of necessary parachute payments came at a large cost: it was in this round of negotiation that Barcelona and Madrid quashed the Sevilla-lead rebellion and enshrined their televisual dominance. The problem the La Liga clubs face is that the big two's popularity is essential to making the league's TV rights seem appealing to prospective buyers. As much as Madrid and Barca are cannibals on their fellow clubs, these same clubs are parasites of the backs of the two behemoths. The clubs accepted a raw deal on TV revenues because they needed parachute payments to guarantee survival; they are trapped in a vicious circle that may well lead to increased big two wealth and popularity, and further little 18 financial jeopardy. All the parties know this, and Madrid and Barcelona use this knowledge to browbeat the league in negotiation. As Espanyol director Joan Collet puts it, “when Madrid and Barcelona stand before them, when Florentino [Pérez, the Madrid president] starts to talk, the other clubs shit themselves."

Nonetheless, there may be some hope for the future. Madrid and Barcelona (and Osasuna and Athletic Bilbao) may soon lose their tax advantage. The special status of the four clubs is under review by the European Commission's competition office, which is seeking to determine whether the tax-breaks the clubs' status allows qualifies as illegal government aid. So far, the commission has taken more than four years to come to a decision, and has still not announced what this decision might be (usually investigations with the same priority as this one are decided in one year, but the competition office have repeatedly overshot their deadlines). Increased pressure from several European clubs, most prominently Bayern München, however, has lead to the intervention of the European Ombudsman. The Independent reported that a spokeswoman of the EC competition office said that it was "in contact with the Ombudsman" over the issue of Madrid and Barcelona's member-owned status and expected "to take a position as regards state aid to professional sport in the near future".

The two outcomes seem to be either that the four clubs will lose their special tax privileges, or, as Inside World Football suggest, that the 1990 act imposing the limited company model on professional clubs will be deemed against the European Union's Directive on Services in the Internal Market, and will therefore be removed. Either way, the playing field should be slightly more level for everyone else.

There is some hope being generated by the clubs themselves. While it seems to have been a failure on a macroeconomic level, within the Spanish football market the policy of austerity is starting to have some success. La Liga teams have reduced their annual losses from €200 million in the 2011-12 season to under €40 million in 2012-13. Furthermore, the predictions for next year are good, with losses potentially falling collectively to just €10 million.

If La Liga continues to manage and reduce its debt, then there is hope that the teams can once again become more competitive with their divisional giants. At the very least, no longer being on the brink of annihilation should give the clubs a stronger bargaining position when the TV rights are next up for renegotiation.

The greatest source of hope, however, is the players themselves. Spain is currently enjoying an unprecedented quality and depth of professional footballers. One of the reasons Spanish clubs have been able to reduce their losses is the continual production of highly talented, and therefore highly priced, young footballers. Currently these players are being sold to fend off oblivion; in a slightly more stable economic environment, clubs may be able to hold onto their talented youngsters just a little longer. After all, Valencia had David Villa for five peak years; Málaga could only cling to Isco for two seasons. Isco is now only 21, and already cost Madrid €30 million. Undoubtedly, in classic Real Madrid style, he will be pretty good for a couple of seasons and then wastefully sold on abroad, at a loss, so the next idiotic president can splurge the next world-record transfer fee on the next unneeded glamour signing. Gerardo 'Tata' Martino, the current Barcelona manager, has recently said that Gareth Bale's transfer fee shows “a lack of respect for the world in general”, and he is completely right. The only problem is that Barcelona paid an equally disrespectful €57 million for Neymar.

‘An education’, or a footballing education?

               A few weeks ago, academy-graduate Matthew Pennington signed a professional contract with Everton. The official announcement on the club’s website pointed out that, remarkably for someone at a dedicated football academy, Pennington had also been awarded ten A* grades at GCSE. But when asked about his academic achievements, he insisted that football had always come before his grades. ‘Hopefully,’ he said, ‘I won’t need them at all and I can make a career in the game’. Obviously he does not believe that education can contribute to his career in football, something that might well be true as long as we are talking about time spent as a player. Being able to mathematically determine what proportion of Brendan Roger’s face is made up of nose will obviously not help Pennington become a 20-goal-a-year-striker (especially as he is a defender).

                But what about when his playing career is over? Let’s say Pennington wants to make the transition from player to manager as seamlessly as Alan Shearer - will an education not come in handy there? On the surface there are few areas of a manager’s job that do not look like they would benefit from the skills gleaned from an education. We as a society value education not for the specific knowledge that it imparts, but for the broader proficiencies that come with it: it helps us to express ourselves effectively, think critically and logically and to understand the complexities of the world around us. All of this has obvious relevance to the career of a manager. They are at the helm of extremely rich and popular businesses. Many play a central role in directing the investment of capital on new players, and every manager is the most important point of media contact between the club and the outside world. If you look outside of the football industry, anyone else who occupies a similar position of importance in finance or public relations is expected to be highly educated and trained in their area of expertise

                I know what you are thinking. But what about Harry Redknapp? For those of you that don’t know, dirty ‘arry is currently the manager of the recently-relegated Queen’s Park Rangers. He has had a long and patchily-successful managerial career, presiding over the ruination of Portsmouth as a footballing institution at his worst and taking Tottenham Hotspur to the Champion’s League and setting himself up as bookies’ favourite for the England job as his best. This career is no more or less illustrious than the vast majority of working managers, suggesting that Harry is, at the very least, competent. But then, in 2012, Harry stunned the world with his in-court arguments against charges of tax fraud. His defense, in a nutshell, was utter incompetence. In his own words he ‘writes like a two year old’ and ‘can’t spell’. Neither can he work a computer or send a text. As a result he ‘doesn’t keep anything’ and at work ‘couldn’t even fill a team sheet in’. He also told the court that he was a terrible investor of money, losing 250,000 pounds of his own money when ‘persuaded… at very short notice… to buy [shares in] Oxford United’.  So, this man was entrusted with  control of a club worth roughly 300 million pounds when he openly admits he is a terrible businessman, unable to communicate through standard long distance methods and not capable of even basic tasks like filling out a bit of paper with his player’s names on it. I don’t need to expand on how absurd that is or how a man like that would not be allowed anywhere near a PR or finance job in the real world.

                Or do I? When I say ‘Harry stunned the world’, I’m lying. It caused nothing like the stir it ought to have, and, though Harry was out of work at the time, he was quickly hired as a manager at a new club. I know. Mad. So why does no one care that Harry has these obvious deficiencies? Why was no one surprised?

Harry wonders who he can persuade to write his team sheet

                The answer lies in a widespread belief in the footballing world that the only preparation you need to be a manger is ‘a footballing education’. The idea is that you can pick up all the skills needed to manage through playing football and watching your manager at work. If, as a player, you never learned to read and write, well these are obviously not skills a manager needs! In fact, this is such a strongly-held view that it is actually very difficult to get a job as a manager if you haven’t played football at a high level. The only problem is that it’s obviously not true. A squad needs to have absolute faith in the manager’s decisions and to obey his commands unthinkingly. Thus it is vital that a manager keeps his players completely separate from the decision-making process and even discourages independent thought on managerial matters - if players were party to things like transfer policy it could obviously have a serious effect on their performance. So, if this is true, how is it possible for a player to learn anything meaningful from their manager? Analogy  exposes the absurdity of the idea – would you employ a builder as an architect because he claimed to have worked with Brunel? In fact, a footballing career is, in many ways, a bad starting point for a managerial career, especially in regards to money, because the culture that surrounds footballers is fundamentally detrimental to their ability to deal with their finances (as Timothy Kennet discusses in a forthcoming article on bankruptcy). 

                So, if this is as obviously false as I claim, why do so many chairmen swallow it and appoint people who are obviously not qualified for the roles they fulfil? A slightly uncharitable explanation is that most chairmen are too stupid to know any better. Stupid is unfair; not stupid, but, like the managers they appoint, fundamentally unsuited the role they fulfil. Remember, anyone can buy a football club – the only ‘qualification’ they need is a hatful of money. Normally, the assumption is that this money is indicative of a high level of business acumen in some area of life that can be transferred across to the successful running of a club. This again is clearly not correct, no one appoints a toothpaste magnate to the head of their Hollywood studio; different industries require a completely different set of skills - none more than football.  Case in point is Mr Fernandes, proud owner of budget airline AirAsia, who funded an insane spending spree at his newly-promoted club QPR to try and keep them in the premiership. He sanctioned the spending of nearly 70 million pounds on transfers in 2011/12 and 2012/13 season, mainly on older players with no resale value and high wages. They were promptly relegated at the end of last year with a shamefully low points score and are in a messy financial situation in the significantly less-profitable Championship. He is also the man who hired Harry Redknapp.

                Fernandes, to his credit, recently came out and admitted that in some ways he had ‘could have done it better’. However, he then went on to claim that the reason for the relegation of his team was that he had not spent enough time directly involved in the running of his business compared to the time he spends at his aviation company - ‘If I spent… every day at Loftus Road [the QPR ground], I dare say it would have been a bit different’. Unfortunately, I worry it wouldn’t have made a lick of difference; as long as Mr Fernandes equates the football business with the aviation business he is going to make no progress whatsoever. He needs to recognise that it is an industry in its own right and approach it as such. How can a self-admitted amateur be expected to hire the best person to do an extremely technical job?

                Further evidence that chairmen are not able to exercise the appropriate judgement in the area of managerial appointments comes when we look at the early career of Redknapp’s successor at Tottenham, André Villas-Boas. In 2010 the young manager submitted an application for the vacant managerial post at Burnley which was described by chief executive Paul Fletcher as ‘Amazing. Even by today’s standards there was some complicated stuff in it, with some things that I didn’t understand.’ But Burnely turned him down. The club was relegated at the end of the season whilst AVB went on to have an undefeated treble winning year at Porto, his next team. And why was he turned down? Fletcher explained it this way: ‘Tommy Docherty used to say he never said anything to his players his milkman wouldn’t understand. I don’t think any milkman would fathom the meaning of a lot of André’s presentation.’ Perhaps thirty years ago, when Docherty was in his prime, football was a very different place, a place in which all a manager had to do was to explain simple tactics in babytalk to his players. However, in today’s footballing world that is simply not an acceptable selection criterion for a role as complicated, multifaceted and demanding as managing a football club. The idea that someone as woefully as unqualified as Redknapp managed to sneak into a managerial position no longer seems all that surprising.


Harry and André embrace

                But you know what? I’m not even convinced that Harry Redknapp is that unqualified. The truth is that I absolutely don’t buy the defence of incompetence that he gave in court - there is just no way a man like that could survive in a footballing institution. Recently, Everton gave the world a peek at the ferociously complex and comprehensive scouting network that served their now ex-manager David Moyes[1]. Sure, Moyes is commonly considered to be ahead of the curve when it comes to the thoroughness of his managerial style, but I would be amazed if other clubs didn’t have similar systems in place. When you remember that this is just one small part of what a manager does you realise how vast their responsibilities are. Even Harry must be hard working, capable of processing vast amounts of information and able to communicate effectively. So why present himself as an ignoramus? Obviously not wanting to be convicted of tax fraud was part of it, but I believe that this incident is actually part of a wider trend. The sad fact is that presenting yourself as an idiot is actually no bad thing in football – it may even be a positive attribute (in the footballing culture of the United Kingdom at least).

                Let me explain. One of the reasons football is so fantastically popular is that most of the people involved present themselves as no different from the average man. If he looks no cleverer or more talented than you as a supporter there is nothing to stop you disagreeing with him and even coming up with your own (apparently) equally informed solutions to his problems. This is why football is such an easy thing to talk about and spawns so many discussions in the pub. Only in football do we have supporter organisations of such vast size and with such strongly held views, and only in football do chairman with no qualifications feel in a position to make important decisions. Unlike entertainment industries in which you are supposed to sit back and admire superior talent, football encourages the supporter to imagine himself as a part of it. By cultivating a false atmosphere of accessibility, football has become as close to interactive as any fixed consumer activity ever has. No wonder, therefore, that managers who refuse to join in with this semblance are criticised for being cold and inexcusably arrogant. But realistically, these men do an extremely complicated job; those that do it well have every right to refuse to pretend to be no better than the average supporter. So I don’t for a second accept Harry’s self-presentation.

                But what does this all mean in relation to education and managers, should they be well educated? Well yes and no. They absolutely do need the skills mentioned earlier that are granted by education, no doubt about it, but they don’t necessarily need to obtain them in that way. It is notable that most uneducated managers devoted large amounts of free time in their playing days to developing these talents though other avenues: looking for extra responsibility within the team, investing their own money and participating in the club’s PR programmes. The only difference between these men who have worked hard to educate themselves and their more formally educated co-workers are that they may find it easier to portray themselves as the average man they are not. But I don’t for a second think there is anyone as fundamentally incompetent as Harry pretends to be working in as a manager in the Premiership. Chairmen, on the other hand, are definitely idiots.

 

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[1] http://www.independent.co.uk/sport/football/premier-league/scouting-system-that-reveals-david-moyes-mind-8756011.html