Soccernomics (12 page)

A man we know once tried to do business with a revered institution of English soccer. “I can do business with stupid people,” he said afterward, “and I can do business with crooks. But I can’t do business with stupid people who want to be crooks.”

It was a decent summary of the soccer business, if you can call soccer a business. People often do. William McGregor, the Scottish draper who founded the English Football League in 1888, was probably the first person to describe soccer as “big business,” but the phrase has since become one of the game’s great clichés. In fact, McGregor was wrong. Soccer is neither big business nor good business. It arguably isn’t even business at all.

”BIG BUSINESS”

Few people have heard of the corporation Titanium Metals. It was founded in 1950, chiefly to produce titanium for the airplanes, submarines, rockets, 75

76

and missiles that the United States needed for the cold war. TIMET

now mostly supplies the aerospace industry. This is pretty unglamorous work, and TIMET is an unglamorous corporation. It’s the smallest of the five hundred publicly traded American companies that make up the S&P 500. In 2008 it had revenues of $1.15 billion and operating income of $220 million. TIMET, whose headquarters is on the LBJ Free-way in Dallas, is not big business. For comparison: in 2008 the biggest company in the S&P 500, the oil giant Exxon, had revenues that were more than four hundred times bigger.

But compared to any soccer club, Titanium Metals is a behemoth.

Every year business adviser Deloitte ranks the richest clubs on earth in its “Soccer Money League.” In 2009 Real Madrid led the league with revenues of about $475 million. That’s a tidy sum, but less than half of TIMET’s revenues, and less than one-thousandth the size of Exxon’s.

Second in the Soccer Money League was Manchester United with a paltry $422 million.

It’s worth noting that the Money League ranks clubs based on how much they sell. When business analysts judge normal companies they usually focus on profits, or the company’s value if it were sold on the market. However, neither of those methods works with soccer clubs. Because almost no clubs are quoted on the stock market anymore, for extremely good reasons, it is hard to work out their value. We can certainly say that not even Real or United would get anywhere near the S&P 500.

And if Deloitte ranked clubs by their profits, the results would be embarrassing. Not only do most clubs make losses and fail to pay any dividends to their shareholders, but many of the “bigger” clubs would rank near the bottom of the list. Deloitte reported in 2008 that the three most profitable clubs in the Premier League were Watford, Reading, and Arsenal, while the three least profitable were Chelsea, Manchester United, and Newcastle.

Whichever way you measure it, no soccer club is a big business. Real and United are dwarfed by Titanium Metals. As for all the rest, the author Alex Fynn noted in the 1990s that the average Premier League club had about the same turnover as a British supermarket—not a chain T H E W O R S T B U S I N E S S I N T H E W O R L D 77

of supermarkets, but one single out-of-town Tesco supermarket. True, soccer clubs have grown since then: by 2008 the average club in the Premier League had a turnover of about $150 million, compared with $100

million for the average British Tesco supermarket. However, since Tesco has six hundred supermarkets or superstores in Britain, the average take of the twenty largest is probably still much larger than that of the average club. And unlike most clubs, Tesco actually makes a profit.

A good way to visualize the size of the soccer industry is to visit UEFA’s headquarters in the Swiss town of Nyon. The building has a lovely view of Lake Geneva, but it looks like the offices of a small in-surance company. Soccer is small business.

This feels like a contradiction. We all know that soccer is huge.

Some of the most famous people on earth are soccer players, and the most watched television program in history is generally the most recent World Cup final. Nonetheless, soccer clubs are puny businesses. This is partly a problem of what economists call appropriability: soccer clubs can’t make money out of (can’t appropriate) more than a tiny share of our love of soccer.

It may be that season tickets are expensive and replica shirts overpriced, but buying these things once a year represents the extravagant extreme of soccer fanaticism. Most soccer is watched not from $1,500 seats in the stadium but on TV—sometimes at the price of a subscription, often at the price of watching a few commercials, or for the price of a couple of beers in the pub. Compare the cost of watching a game in a pub with the cost of eating out, or watching a movie, let alone going on vacation.

Worse still, soccer generates little income from reruns of matches or transfers to DVD. And watching soccer (even on TV) is only a tiny part of the fan’s engagement with the game. There are newspaper reports to be read, Internet sites trawled, and a growing array of computer games to keep up with. Then there is the soccer banter that passes time at the dinner table, work, or the office. All this entertainment is made possible by soccer clubs, but they cannot appropriate a penny of the value we attach to it. Chelsea cannot charge us for talking or reading or thinking about Chelsea. As the Dutch international Demy de Zeeuw 78

says, “There are complaints that we [players] earn too much, but the whole world earns money from your success as a player: newspapers, television, companies.” In fact, the world earns more from soccer than the soccer industry itself does.

BAD BUSINESS

Soccer is not merely a small business. It’s also a bad one. Anyone who spends any time inside soccer soon discovers that just as oil is part of the oil business, stupidity is part of the soccer business.

This becomes obvious when people in soccer encounter people in other industries. Generally, the soccer people get exploited because people in other industries understand business better. In 1997 Peter Kenyon, then chief executive of the sportswear company Umbro, invited a few guests to watch a European game at Chelsea, the club he would end up running a few years later. After the game, Kenyon took his guests out for dinner. Over curry he reminisced about how the sportswear industry used to treat soccer clubs. In the 1970s, he said, big English clubs used to
pay
companies like Umbro to supply their clothing. It was obviously great advertising for the gear makers to have some of England’s best players running around in their clothes, but the clubs had not yet figured that out. And so sportswear companies used to get paid to advertise themselves.

Ricky George saw the ignorance of soccer in those days from point-blank range. In 1972, when George scored the legendary goal for nonleague Hereford that knocked Newcastle out of the FA Cup, he was working for Adidas as a “soccer PR.” His job was to represent Adidas to England players, former world champions like Bobby Moore, Bobby Charlton, and Gordon Banks. There was little need to persuade them to choose Adidas. Most of them wore the three stripes for free anyway.

George says, “It is quite a fascinating thing if you compare it with today.

There were no great sponsorship deals going on. All that happened is that you would give the players boots. But even then, at the beginning of every season the clubs would go to their local sports retailer and just T H E W O R S T B U S I N E S S I N T H E W O R L D 79

buy twenty, thirty pairs of boots and hand them out. For a company like Adidas, it was the cheapest type of PR you could imagine.”

Only on special occasions did George have to pay players. “When it came to a big international, and the game was going to be televised, my job was to go to the team hotel, hang around there, make myself known, and a couple of hours before the game I would go into the players’

rooms and paint the white stripes on their boots with luminous paint so it was more visible. My bosses used to be keenly watching the television to make sure the stripes were visible, and if they weren’t I would be in for bollocking.”

For this service, an England player would receive seventy-five pounds per match, which was then about two hundred dollars—not a princely sum even in 1972. George recalls, “Bobby [Moore], the most charming of people, didn’t take the money on the day of the game. He just used to say to me, ‘Let it build up for a few games, and I’ll ring you when I need it.’ And that’s what he did.” Then the most famous defender of the era would pocket a cumulative few hundred dollars for having advertised an international brand to a cumulative audience of tens of millions.

Only in the late 1980s did English soccer clubs discover that some people were willing to buy replicas of their team shirts. That made it plain even to them that their gear must have some value. They had already stopped paying sportswear companies for the stuff; now they started to charge them.

Gradually over time, soccer clubs have found new ways of making money. However, the ideas almost never came from the clubs themselves.

Whether it was branded clothing, or the gambling “pools,” or television, it was usually people in other industries who first saw there might be profits to be made. It was Rupert Murdoch who went to English clubs and suggested putting them on satellite TV; the clubs would never have thought of going to him. In fact, the clubs often fought against new moneymaking schemes. Until 1982 they refused to allow any league games to be shown live on TV, fearing that it might deter fans from coming to the stadium. It took another decade for clubs to grasp that games on television meant both free money and free advertising.

80

It took them even longer to realize how much soccer was worth to people like Murdoch. In 1992 he began paying about $115 million a season for the television rights to the new Premier League. Now the league gets about ten times as much a season from television. “I’ve been screwed by television,” admitted Sir John Hall, then the Newcastle chairman, one rowdy night at Trinity College Dublin in 1995. “But I’ll tell you one thing: I won’t be screwed again.”

Or take the renovation of English stadiums in the early 1990s. It was an obvious business idea. Tesco doesn’t receive customers in sheds built in the Victorian era and gone to seed since. It is forever renovating its stores. Yet soccer clubs never seem to have thought of spending money on their grounds until the Taylor Report of 1990 forced them to.

They did up their stadiums, and bingo: more customers came.

All this proves how much like consumers soccer fans are. It’s not that they come running when a team does well. Rather, it seems that soccer can quickly become popular across a whole country. All teams then benefit, but particularly those that build nice new stadiums where spectators feel comfortable and safe. That would explain why the three English clubs whose crowds grew fastest over the nineties were Manchester United, Sunderland, and Newcastle. In other leagues, clubs such as Ajax and Celtic also drew huge new crowds to their new grounds—

in Ajax’s case, even though its soccer spontaneously combusted. There is such a close link between building a nice stadium and drawing more spectators that the traditional fans’ chant of “Where were you when you were shit?” should be revised to “Where were you when your stadium was shit?”

Yet like almost all good business ideas in soccer, the Taylor Report was imposed on the game from outside. Soccer clubs are classic late adopters of new ideas. Several years after the Internet emerged, Liverpool, a club with millions of fans around the world, still did not have a Web site. It’s no wonder that from 1992 through May 2008, even before the financial crisis struck, forty of England’s ninety-two professional clubs had been involved in insolvency proceedings, some of them more than once.

T H E W O R S T B U S I N E S S I N T H E W O R L D 81

HOW THE TRIBE CHOOSES ITS CHIEFS

Rather than stack up endless examples of the dimness of soccer clubs, let’s take one contemporary case study: how clubs hire their key employee, the manager. English fans are still asking themselves how Steve McClaren ever got to be appointed England manager, but in fact it is unfair to single him out. The profusion of fantasy soccer leagues, in which office workers masquerade as coaches, indicates the widely held suspicion that any fool could do as well as the people who actually get the jobs. The incompetence of soccer managers may have something to do with the non-sensical and illegal methods by which they are typically recruited.

Soccer “is a sad business,” says Bjørn Johansson, who runs a headhunting firm in Zurich. Like his colleagues in headhunting, Johansson is never consulted by clubs seeking managers. Instead, a club typically chooses its man based on the following factors.

The New Manager Is Hired in a Mad Rush

In a panel at the International Football Arena conference in Zurich in 2006, Johansson explained that in “normal” business, “an average search process takes four to five months.” In soccer, a club usually finds a coach within a couple of days of sacking his predecessor. “Hesitation is regarded as weak leadership,” explained another panelist in Zurich, Ilja Kaenzig, then general manager of the German club Hannover 96. Brian Barwick, the English Football Association’s former chief executive, has noted that McClaren’s recruitment “took from beginning to end nine weeks,” yet the media accused the FA of being “sluggish.” If only it had been more sluggish.

A rare slow hire in soccer became perhaps the most inspired choice of the past two decades: Arsenal’s appointment of Arsène Wenger in 1996. Wenger, working in Japan, was not free immediately. Arsenal waited for him, operating under caretaker managers for weeks, and was inevitably accused of being sluggish. Similarly, in 1990 Manchester United’s chairman, Martin Edwards, was derided as sluggish when he 82

refused to sack his losing manager, Alex Ferguson. Edwards thought that in the long term, Ferguson might improve.

The New Manager Is Interviewed Only Very Cursorily

In “normal” business, a wannabe chief executive writes a business plan, gives a presentation, and undergoes several interviews. In soccer, a club calls an agent’s cell phone and offers the job.