UEFA And The Fairness Of Transfer Fees

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By J Hutcherson - WASHINGTON, DC (Jan 26, 2012) US Soccer Players -- Once again with UEFA, it's the money.  Specifically, who controls it and how it's spent across Europe.  That's the broad carryover from UEFA's attempt to restructure European football club finances, a point they pressed with the 4th edition of the Club Licensing Benchmarking Report released on Wednesday.

It's an intriguing document for a number of reasons, perhaps most of all because it stresses the importance of the benefactor model UEFA would like to remove from the game.  European clubs have lost €4 billion euros over a five year period, but what UEFA refers to as "owner and benefactor capital injections" put €3.4 back in.  Think of it as rich uncle syndrome, bailing out clubs that would otherwise be floundering economically.

UEFA firmly believes that Financial Fair Play will reconfigure the economics of the club game in such a way that the benefactor model isn't as necessary.  That shift in economy will have all clubs operating at maintainable levels without putting their operations in financial jeopardy.  We've discussed that move in detail before, and there's no reason to stress a very simple point concerning the purpose of professional sports. 

The story UEFA is telling is one of disparity.  They point to items like only two of twenty European top flights didn't post a lost.  Yet few people judge the economic health of a league that way.  Think of it like this.  There's almost always going to be a club in trouble in any collection of 18 to 20 clubs.  One of them will have taken a risk that didn't pay off, and are now struggling with the consequences.  Most of the time, it has very little to do with the health of the league as a whole, much less the economic fortunes of other clubs in that league. 

It's the equivalent of judging your financial well being by including everyone that lives within a mile.  There's value in looking at demographics, but they decrease the less those in the survey have in common.  It's not news to anybody that the elite of Europe have more in common with each other than most of the clubs in their own domestic league.    It's also not news that clubs are willing to spend well beyond even the most optimistic revenue projections to move into or stay among the elite. 

Whenever Real Madrid or Barcelona has a presidential election, it becomes about how willing a candidate is in engaging in fantasy soccer.  It takes considerable money to make those campaign promises a reality, yet it doesn't stop the fans from voting for the person who promises to do the most.  That means spending at a level that allows for all-star rosters. 

The path to that kind of greatness will always have a financial component.  We're well past the era when the Nottingham Forests and Aston Villas of the world could win European Cups without a team of superstars.  The unheralded team shocking the rest of Europe is an interesting story, but it's simply not the norm.  All involved know whether or not they have the ability to spend at the necessary level.  They also know the stark downside of getting caught out after a period of overspending. 

Part of what UEFA is doing seems to be an attempt at removing market correction.  Overspend enough with or without results, and a club's immediate future can be compromised.  As much as European clubs elite and otherwise try to promote themselves as brands, we're not talking about multinational conglomerates.  These are soccer clubs, most still heavily reliant on what happens in their local market.  The numbers are inflated, but the day-to-day work isn't all that different from what many of these clubs were doing ten, twenty, or thirty years ago. 

UEFA's hedge here is continuing to allow losses even when Financial Fair Play comes into full effect.  Nobody is arguing for balanced budgets, and that should be a reality check on what's really in play.  It's lessening the severity of the slide for clubs that can't help themselves but to overreach.  The odd part of this exercise in financial acumen is the lack of focus on the basic concept of transfer fees. 

In their report, UEFA lets us know that clubs spent €3.3 billion on transfer fees in fiscal year 2010, and of that €2.3 billion have yet to be paid.  Installment plans to pay transfer fees are nothing new, and it does two things.  It lessens the immediate financial burden while potentially hampering clubs at a later date when their economic reality could be drastically different.  In other words, it allows clubs to overextend themselves. 

There's a built-in mechanism in European professional soccer that tempts clubs to spend more than they're ever likely to have.  If the immediate impact is winning trophies, it's a temptation that becomes difficult to resist.  Even the big clubs that can nominally afford yet another world record transfer fee have run into issues actually paying for their spending sprees.  This is nothing new.  Yet other than suppressing the willingness to spend by risking their European competition license and thereby suppressing the market as a whole, there's very little in UEFA's planning to address the biggest financial problem. 

It's more than just benefactors splashing the cash and giving their clubs advantages few of their rivals possess.  It's a system that promotes selling contracts rather than trading players.  Imagine if any of the North American sports were to suddenly adopt a transfer system in lieu of player trades.  The internal economics of all of those leagues would inflate rapidly, changing the economic realities of all involved. 

Take away or at least begin to minimize the streams of cash circulating through European soccer's transfer system, and the economic model for European soccer clubs has no choice but to change.  What UEFA is describing through their various reports is adapting, not changing.  To really provide 'sustainability' across all European professional clubs, it's change that is needed.  Even then, clubs will always find ways to lose money.  That's a part of professional sports that no business model or set of rules will ever be able to avoid.

Comments, questions, solutions to problems that have yet to present themselves.  Please, tell me all about it.

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One Response to UEFA And The Fairness Of Transfer Fees

  1. Jeff says:

    Slightly different read, this is a very European move. UEFA is trying to stop what they think is the potential end of Euro club soccer. It’s a good idea, but I think you’re right about execution issues. They just don’t want to see clubs squeezed out by the big clubs setting the agenda. There’s more to the game than just Real-Barca or United-Arsenal.