By Zach Bigalke
For sports fans in the United States — who endured the NFL work stoppage over the summer, and are currently watching and waiting as the NBA and its players work toward a stalemate that could look suspiciously like the NHL’s season-long shutdown in 2004-05 — labor situations have taken on a curious pattern in recent years. It isn’t the players, the labor of this situation, which initiates a strike; instead, it is management, demanding guarantees of profitability and a greater share of the pie, who locks the players out of the buildings.
In the matter of La Liga in Spain, at both the primera and segunda divisions, the threat for this opening weekend is that the impasse between the two sides will lead to their own work stoppage. The difference, one which would look a lot more familiar to American sports fans a century ago than those of today, will be how that stoppage is initiated.
This isn’t a matter of management locking out the players, refusing them entry into the building. The teams would LOVE to get things started this weekend. As negotiating sessions between the LFP (the governing body which controls the top two flights of Spanish soccer) and the AFE (the union of soccer professionals which comprise the labor of those top two divisions) repeatedly fail to bring both sides to some sense of resolution, the threat of a strike continues to issue out of the players’ camp.
Union leaders are calling for the players at the top 42 clubs to sit out the first two weekends of the season in hopes that their demands will be met. But why, precisely, are they demanding a strike? What is the current situation in Spanish soccer that is leading to the impasse? To understand these demands, first you must look at the financial situation of the league. And that situation really is not anything to gloat about…
The problem is one of revenues, and debts, and what happens when clubs go belly-up in a market that values a dichotomy of greatness at the expense of a more diverse pool of contenders. It is a cautionary tale of what happens when two juggernauts come to dominate in a way that chokes out substantive investment in any but those twin titans.
REVENUE IN 2009/10 SEASON (€ mil)
Real Madrid and FC Barcelona are the top two clubs in the world at generating revenue. From local gate receipts at their stadiums to global television deals and merchandise sales, the two clubs combine to pull over one billion dollars annually in revenue. Of course, this revenue also allows them to go out and purchase the world’s most famous and talented players, perpetuating the cycle that has allowed one of the two clubs to win the Primera Liga each of the past seven years.
That in and of itself is not a bad thing. The problem is that the rising tide of currency hasn’t swept up the rest of the clubs like it has the two preeminent franchises of the nation’s top league. The disparity forces clubs to spend beyond their means to try to “keep up with the Joneses”, driving them further into a debt chasm from which there is no TV deal nor enough stadium seats to climb out.
3rd-HIGHEST EARNER AS PERCENTAGE OF TOP REVENUE EARNER BY LEAGUE (2009/10)
LEAGUE (1st, 3rd team)
ENG (ManU, Chelsea)
GER (Bayern, Schalke)
ITA (AC Milan, Juventus)
FRA (Lyon, Bordeaux)
ESP (Real, Atletico Madrid)
The Deloitte Football Money League Report for the 2009/2010 season draws a stark picture. While most of the biggest leagues around Europe have their top clubs which dominate revenue generation — AC Milan, Inter and Juventus in Italy; Manchester United, Arsenal, Chelsea and Liverpool in England; Bayern Munich in Germany — the disparity between the top earners and the clubs below them has never been as stark as it is in Spain.
The difference between the top team and the third-highest earner in England? Chelsea earns 73% the revenue that Manchester United can generate. In Italy, the top three clubs have a disparity of just €30 million between top earner AC Milan and third-placed Juventus. France has a disparity between Lyon and Bordeaux that is nearly the equivalent of the EPL.
The closest league to Spain in terms of disparity is Germany. In the Bundesliga, Bayern Munich dominates the revenue stream. Their gate receipts total 265% the amount brought in by third-placed revenue earner Schalke; they also generate 236% more in TV deals and sell 219% more merchandise.
INCOME DISPARITY BETWEEN TOP THREE CLUBS IN SPAIN (2009/10)
Atlético de Madrid
% Atletico v. Barca
% Atletico v. Real
But that disparity is nothing in comparison to the separation between the top two Spanish clubs and third-placed earner Atletico Madrid. The disparity between Atletico and second-place earner Barcelona is greater between the divide separating Bayern Munich and Schalke.
Barcelona generates 272% more gate receipts, 288% more television revenue and 320% what Atletico brings in from merchandise sales. The gulf only widens when Atletico is compared to its cross-town rival.
Real pulls in nearly four times what Atletico can generate in matchday revenue, a result of both average attendance figures that see the top two clubs pull in twice as many fans to each match and the fact that those tickets fetch nearly twice the price at which Atletico can sell their tickets. Because they generate more revenue, Real and Barcelona can poach players from the clubs in their own league — from right across town, in fact, if they so choose. In turn those players lead the teams to greater success on the field. That success generates greater global interest, which in turn drives TV deals and merchandise sales.
REVENUE v. LEAGUE PLACEMENT
Atlético de Madrid
The self-fulfilling prophecy has led to some dangerous inequities. Without any semblance of revenue sharing, the rich get richer and the gulf gets wider. The top flight of the Spanish league grew as a whole by 8% in the 2009/10 season, generating $2.3 billion in revenue during that league year. More than half of that money was pulled in by just the two clubs at the top; the other 18 teams in the league were forced to split $1.1 billion in crumbs among themselves.
It is a system that has led to the declaration of bankruptcy last month by 22 clubs in the top two divisions — including six in the Primera Liga. When thirty percent of your top league is insolvent, all the revenue generation at the top will do nothing to help out clubs that cannot spend freely with house money…
Which leads us to the current strike action planned by the players. With clubs going bankrupt at an alarming rate, there are still over a hundred players who have not been paid for their services last season to the tune of over $43 million. While guys like Cristiano Ronaldo (Real Madrid, €12 million in 2010/11) and Lionel Messi (Barcelona, €10.5 million) have certainly received all of their money for the time they put in on the pitch for the Spanish giants, it is the guys at clubs like Racing Santander, Real Mallorca, Real Zaragoza, Real Betis, Rayo Vallecano and Granada (the six bankrupt clubs in the top league) who are still waiting to be paid.
As clubs have struggled to stay afloat, they have nevertheless been spending big just to try to remain at mid-table respectability and prevent relegation to the second division. This profligate spending has led to a debt burden of $4.8 billion — twice the amount of the revenue generated annually by the league as a whole. The problem in this situation is that it is the teams with less money that suffer this debt burden at a disproportional amount.
And because television revenues are negotiated on a club-by-club basis, in contrast to the leaguewide television negotiations that go into securing shared revenue streams from worldwide television distribution (while clubs can still control local TV deals), a league that should be awash in money is instead leaving millions upon millions on the table every year.
With €650 million leaguewide in television revenue, half of that is automatically going into the pockets of the biggest clubs. Italy generates half again as much for its Serie A members, England has revenues over a billion Euros annually, and even France — with a league that is modest in comparison to the worldwide recognition garnered by La Liga — pulls in €607 million combined for its member institutions.
All players are looking for is a simple guarantee on their salaries, that they will get paid for the work they put into the game. Unlike the NFL, which is honest in its lack of guaranteed contracts but at least pays for the work put in, or the NBA, where owners and players are arguing over percentages of revenue, this is a matter where players are simply asking for the fair share negotiated.
Of course, salary escalation across the board has helped bury some of these clubs in the first place. Some never should have handed over contracts that were above and beyond their means. But the way the system is rigged in Spain, these clubs have no choice if they want to field talent that can at least play respectably enough to stay afloat. Just as Real and Barcelona operate in a marketplace where they can consistently generate ever-greater revenues with each passing year, the clubs below them are operating in an area where the best they can hope for is to stave their losses — on the balance sheet and on the pitch — enough to remain in a league where the big boys are guaranteed to crush them year after unsatisfying year.
The crux of the issue falls to whether salaries should be guaranteed, whether a club that is insolvent should be expected to pay its workers for the work already put in. The LFP last year created an emergency fund totaling €40 million; this fund failed to cover all of the losses, leading the players to demand full restitution.
So it looks like the Spanish league will strike, and the only thing unjustified in the situation is the disparity that has led to this showdown in the first place. When two clubs come to so thoroughly dominate the revenue pulled in by a league, the long-term health of that league looks weak indeed. Without a healthy base below, the two clubs become less-legitimate representations of that nation’s league, anomalies whose accomplishments look all the more hollow while the minnow founder below them.
Without a full compliment of players to field twenty legitimate teams, and the distribution of league money to keep those players on the pitch, a league is a league in name only. A league is not as strong as its top teams; it is only as strong as the base that can challenge them toward greatness in the first place.
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