With the debate in Washington raging over the country's rising debt and the effects of the Great Recession still being felt across the world, it's not very surprising that some soccer clubs are getting into serious financial trouble. However, while governments of the world talk of bailouts and austerity plans, no such measures are coming to the soccer world, where debt has ballooned so large that it threatens to radically change the sport as we know it.
The fact of the matter is that the vast majority of clubs in Europe, from giants to minnows, are heavily, heavily indebted. Take the case of Real Madrid, one of the most successful clubs of all time: According to the club's 2008-09 financial statements, it has $414 million in debt despite earning over $500 million a year in revenue. FC Barcelona, Real's big rival, is even worse off, owing $648 million, and was forced to take a $214 million loan earlier this season to make sure it remained solvent.
How is this possible? Real Madrid and Barcelona are two of the most popular clubs in the world, generating hundreds of millions in jersey sales, broadcasting rights and sponsorship deals, on top of the ticket sales at their respective stadiums, which are two of the biggest in Europe. How did they get into such debt? The answer is as simple as it is troubling: huge transfer fees and player salaries.
Despite the red ink on their balance books, Real Madrid and Barcelona both spent over $90 million on transfers last summer. Even as the debt piles higher, fiscal responsibility is almost a taboo at the big clubs, which feel that they always need to buy new players to remain successful. Their policy has become to spend money now and always put off the consequences.
That attitude does not only exist at the big clubs. For example, collectively, the 20 teams of the English Premier League have a debt of $4.45 billion. In La Liga, that figure is $4.65 billion. And overpaying for players in big money transfers isn't the only problem: Clubs routinely spend close to all of their revenue on player salaries.
For example, Atlético Madrid, Sevilla and Valencia, all relatively successful and well-known Spanish clubs, spent more money on salaries than they took in in revenues over the course of the 2008-09 season. Birmingham City and Wolverhampton Wanderers both have wage bills that come within $1.5 million of revenues. I could go on and on with the examples, but it just paints a more depressing picture.
At this point, the majority of the clubs in the major leagues of Europe are facing serious financial trouble. Besides clubs like Manchester City and Chelsea that are run by tycoons with a seemingly endless supply of money, teams will have to undergo significant changes, in both attitude and economic model, to fix their fiscal problems.
Recognizing that fact, UEFA has instituted a "Financial Fair Play" system that will take effect by the 2012-13 season. In an effort to stop the reckless profligacy of most the major clubs, UEFA will ban from European competition any club that spends more than it takes in in revenues. But this system has several loopholes that will undoubtedly be exploited by clubs, most prominent of which allows clubs to keep accruing debt after 2013 so long as their owner agrees to cover it.
In other words, clubs are going to keep spending themselves into the ground until a wave of financial collapses sweeps across the sport. And the signs of that meltdown are already spreading: Portsmouth went into bankruptcy last year, and Liverpool was within a few days of doing the same if John Henry had not intervened and bought the club. Until clubs learn the lesson the hard way, and see the effects of their irresponsibility, they will keep on spending until they drive the whole system into the ground.
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David McIntyre is a freshman who has not yet declared a major. He can be reached at David.McIntyre@tufts.edu.
