The Finances Behind the Creation of a European Super League
Scores of football fans around the world were engrossed last Sunday watching weekly football games of various national leagues and perhaps even the finals of Copa del Rey.
A few hours later, they woke up to the news of an unprecedented divide in European football as the 12 most celebrated clubs in the continent announced their plans to form a separate league, the European Super League (ESL).
It means that in addition to playing in the national leagues (EPL, La Liga etc.), the 12 teams (planned to become 20 eventually) will participate in a new midweek competition in place of the UEFA Champions League. 15 of the founding teams of ESL will be permanent members and the rest 5 spots will be open for qualification annually.
As of now, the breakaway faction only comprises clubs from England (6), Spain (3) and Italy (3). The “permanent” nature of the founding members essentially makes it a “closed” league and shuts the door for other teams which are deemed to be “not big”. Furthermore, it also goes against the meritocratic pyramid framework that European football is built on.
Why? They say it is all about economics. The pandemic has ravaged the teams’ revenues and business so hard that if there’s to be any effort to secure the long-term future of football, this is it.
The idea is that “bigger” teams will get to play each other more often which should provide for heightened excitement i.e. A better spectacle which in turn should yield superior economics.
Alternatively, the current governing bodies, some players and most of the fans say it is all about greed. They blame it on the wealthiest football clubs in the world desiring to get even wealthier at the expense of smaller clubs.
Many of them even dismiss it out of hand, saying the ESL will never come into fruition. Their primary opposition revolves around the lack of a merit-based framework and a sense of footballing entitlement that has become the key factor for participation in the ESL.
The Economics Involved in ESL
As per the latest valuation, the wealthiest football clubs (Barcelona, Real Madrid, Manchester United, Liverpool, Manchester City and Chelsea) are each worth more than $3bn. However, their combined debt also ranges close to a billion dollars.
Club revenues have no doubt been hit hard by the pandemic with cancelled or disrupted fixtures and loss of stadium audiences. When you add the multi-million dollar salary figures that clubs owe their star players amid such harsh budgetary constraints, a share in the €3.5bn ($4.2bn) credit lifeline that JP Morgan throws their way naturally seems enticing (ESL is essentially being bankrolled by JP Morgan, underwriting €3.5bn to help the clubs set up the league + other organisational expenses making it close to a €4bn ($4.8bn) bet by JP Morgan).
Not to forget, the reward for the ESL winner is close to $470m against $141m given in the Champions League.
This, however, doesn’t take away from the fact that however tight the wealthy clubs’ purses are, the less wealthier ones’ are even tighter. The club sports in Europe are modelled on a win-more-take-more format. The revenues and profits of a club are directly or indirectly influenced by its wins and also the number of games it plays.
ESL’s plan is to replace the group stage fixtures of Champions League (groups of four teams play each other home and away) with the “Swiss Model” where each team would play 10 matches against 10 different opponents and those with the best records would qualify for the knockout rounds (much like IPL). It’s a private league at the top of the European pyramid somewhat guaranteeing that big teams face each other more often.
So if you move down the football pyramid and consider, say, Leicester City, which made a £92.5m ($128m) profit single-handedly in 2016–17 season as they broke into the Champions League quarter finals, you’re effectively ruining the financial opportunities for these clubs and their communities who have supported them for so long.
This shows that the ESL isn’t a prop for boosting lost compensation (pandemic-related and otherwise) for the big clubs. It’s rather a recompense mechanism that distorts the economics and widens the revenue gap.
Winter of Revenue Discontent
Consider this. The wealth of a club is channeled from three major sources — its domestic league’s broadcasting deals, its commercial contracts and the UEFA Club Competitions (UCC) revenue.
The broadcasting money has a huge impact. EPL has the highest proceeds from the TV deals (almost 30% more than other European leagues), which eventually pass to the clubs hinting that English clubs, perhaps, are equipped with better coffers to bank on. But you wouldn’t think so seeing as six out of the 12 founding clubs in the ESL are English!
The sponsorship and proprietary deals are where the big clubs are at a natural advantage because this is heavily dependent on the scale of fanbases, irrespective of on-field successes. Manchester United hasn’t seen much success since Sir Alex Ferguson’s retirement but their commercial exploits still remain colossal, thanks to the partnership and branding deals.
Anyway, the turf gets tangy when the question of money pops up between the leagues and the governing body. How much the UEFA distributes to every national league is determined by many factors including representation in the group stages, match participation etc.
In the previous UEFA Club Competitions (UCC) cycle (2015–18), the top three clubs in each of the ‘Big Five’ European Leagues amassed 85% of the revenue their country received. Essentially, 93% of the UCC money is shared between participants in the Champions League (32 teams) and the Europa League (48 teams) leaving only 7% for the 650-odd clubs in the national leagues who didn’t play in the group stages of either of these two tournaments.
The Fault in Football Governance
What’s interesting to note is that even if UEFA has come out strongly against the ESL, it isn’t entirely blameless for this inequitable wealth regime. The call for setting up the ESL dates as far back as to 1998 when a coalition led by Silvio Berlusconi, former Italian PM and once-owner of AC Milan, pitched for it with backing from fellow potential financiers like Rupert Murdoch, Leo Kirch and Prince Al-Waleed bin Talal.
Although the pitch was dismissed on multiple occasions, there is a climate of appeasement that follows the duration after the pitch wherein the revenue shares of big leagues are readjusted to higher figures so that they quit pitching further. In fact, many believe that the current situation is nothing dissimilar and merely a cry for attention by the rich leagues to persuade UEFA to fill their pockets.
Legal Implications
The proposed ESL flies right in the face of competition law. According to preliminary details, it seems like a closed league that doesn’t allow relegation of promotion. Each country would have a handful of clubs playing with only a quarter of the spots open for outsiders.
This has been equated with somewhat Americanisation of European football given it follows the same structure as popular American leagues like NFL, MBL, NBA etc.
Some also say the ESL will end the “monopsony” of UEFA. A monopoly is where a single seller controls the market. A monopsony is one where a single buyer controls the market. If someone wishes to start a professional club or play professional football in Europe, UEFA is the sole buyer. The NFL, MBL, NBA and even UEFA are all monopsonies. A super league may end this and bring in self-governance for the clubs, although the proposed manner of such governance is still unknown, contrary to the American format where the franchises are greatly regulated with rules on salary caps, squad strength etc. in place.
One may also witness some heavy-handed legal flexing between the ESL, the UEFA and the FIFA. Although the management of 12 teams are reassured of their advancing strategy, quite believably so in light of their immense soccer capital, it is too soon to tell.
FIFA, however, has a leverage to exercise by allowing the players to be a part of ESL, or not. Should they choose to disregard FIFA’s discretion, they may forego playing for their national teams and other tournaments, which is sure to put their loyalties to the test. However, this appears to still all be up in the air and it is wait and watch for now.
(Originally published April 20th 2021 in transfin.in)
