C ONVERGENCES AND DIVERGENCES OF I NTERESTS

3.

CHAPTER THREE: THE CONFLICTS

The objective of this chapter is to identify the main conflicts impacting the current reality of European football and investigate their root causes. The analyses in this chapter rely on the main findings from the previous chapters of this paper, with special attention to the description of the actors in chapter 2, and the stakeholders’ map from section 1.1.3. We begin by analysing the main areas of convergence and divergence in the interests of the actors, followed by a description of what have been the major conflicting areas in the recent past, specifically between UEFA and the top clubs. We finalise the chapter with an exercise of designing scenarios for European football based on the possible next moves of the actors.

As we can see from Figure 3.1, there is one main area of interest in which the three actors converge:

They all want to increase the demand for football, which in simple terms means increasing the number of people interested in the game of football. This is the starting point, and although there might be many disagreements as far as the most suitable strategy to be adopted to reach that goal, there are no questions that, as interest for the sport rises, all stakeholders benefit. Again, we see the fan as the focal point.

It is important to remark that increasing demand for football is not a passive activity, as many people in the industry seem to think. Football is the most popular sport in the world today, but there are many other sports, and leisure activities competing for a share of the attention and income of the population, and although it might not happen from night to day, there are no reasons to believe that football will enjoy its current comfortable position in the preference of fans perpetually. Increasing demand for football is an objective that has to be kept in the mind of the actors at all times when making decisions about the production of the game.

We will now take a more systematic look at the areas of convergence and divergence between the actors.

3.1.1. UEFA AND THE LEAGUES

UEFA and the national leagues have many common points of interests. Both want to increase the quality of the domestic game, as UEFA knows that the strength of the link between the supporter and football has local and national roots. This can be seen from the fact that UEFA distributes part of the revenues from its premium competitions to national associations and national leagues, and from the fact that UEFA uses sporting results in the domestic scenario as the main criteria for eligibility to international competitions.

A second area of convergence lies in the fact that both act as market regulators, guaranteeing that football clubs are doing their share in the long term development of the game. The Club Licensing System is an example of such interest, and as we have explained, while a priori, the national associations will be responsible for assuming the role of licensors, they have the right to delegate that task to the national leagues. In Italy for example, the Lega Calcio will be the licensor for the UEFA Club Licensing System. But this regulating activity has been in place for a long time before the Club Licensing System, since leagues have to look after the financial health of clubs in order to assure the survival of the competition. This type of control is particularly strong in France where the League decided to relegate AS Monaco, second of the latest French championship and qualified therefore for the next Champions League first group phase, into the second division since their budget was not meeting the League’s criteria.¹⁴⁴

The divergences between the leagues and UEFA arise mainly from differences in the scope of activities. While UEFA is concerned with the development of all forms of the game in the continent, the

143 Although we recognise that this assumption may not be completely true, as there are many cases of TV companies directly influencing decisions concerning the format and calendar of competitions, but we will treat this as the exception and not the rule.

144 This decision however was not confirmed, after the club lodged an appeal to the competent body.

league has a national scope, and is concerned with the game of professional club football in its elite form. While UEFA (and the national associations) will divert investments for grass root development, and make use of national teams to improve the popularity of football, leagues are primarily concerned with the quality and the commercial exploitation of the specific competition they organise.

The divergence in the geographical scope of competitions is a relevant one for two main reasons.

Firstly because domestic and continental competitions have to share the same calendar. Thus, decisions about competition format made at one level, directly affect the other level. Secondly because it generates an area of divergence between the leagues and their member clubs. Usually an increase in the competitive balance of the domestic league, promoted through solidarity measures within the league will directly impact the competitiveness of the clubs in the continental level. Arnaud Rouger, representative of the Ligue de Football Professionnel in France describes this situation in detail:

‘Every league faces a pressure to manage its championship with the recognition that some of the clubs will participate in international com petition. This is a delicate situation because the league has to preserve its national championship while still trying to satisfy the clubs which want to qualify for these international competitions. Thus the league faces a political decision regarding income redistribution. The league may decide to unbalance the redistribution and favour the clubs at the top of the league with the intention of helping them in international competition, or to adopt a more equal redistribution, which might impair the competitiveness of its clubs internationally. If it chooses the first alternative, it runs the risk of harming its primary product, unbalancing the national competition and undermining public interest. The French league is caught between these two positions.

There is a well balanced redistribution in the entirety of the league, but in the eyes of the big clubs, it is not enough catering to them.’¹⁴⁵

Finally a more subtle divergence arises from the interest of leagues in optimising the commercial potential of their competitions and the interest of UEFA to maintain the sovereignty of the national football associations. While confined in the national territory, the commercial potential of league competitions is constrained by some external variables that are not under the control of the league.

One important external variable is the size of the Television market in a determined country. It is well known that different countries, despite the passion of the population for the sport, have different sizes of television markets; Figure 3.2 illustrates that situation showing that there is little correlation between the size of the crowds in the stadiums with the average domestic TV income for the league. Therefore, one of the alternatives to increase the commercial potential of domestic league competitions is to create trans -national alliances between leagues¹⁴⁶ as it has already been proposed in the past, the organisation of the North Atlantic League comprising clubs from Scotland, the Netherlands, Belgium and Portugal. UEFA strongly repels this idea as it would undermine the sovereign authority of the national associations, over which its power structure is built.

145 Interview with Arnaud ROUGER

146 Although the idea of trans-national leagues most of the times come from the clubs themselves, rather than the domestic leagues

Figure 3.2 – Correlation between average league attendance and TV Income - 2000

0 5 10 15 20 25 30 35

0 10 20 30 40 50 60 70

Top Danish Clubs

Top Belgian Clubs Middle English Clubs Bottom German Clubs

Top Portuguese Clubs Top Dutch Clubs

Top Scottish Clubs Bottom English Clubs

Middle Italian Clubs

Top German Clubs Top English Clubs

Top Italian Clubs

Average attendance (‘000)

Average domestic TV income (€m)

Top Spanish Clubs

Source: Clubs’ annual reports, O&O analysis

Top English Clubs 2001+

3.1.2. UEFA ^AND C^LUBS

‘I think the objectives of clubs and UEFA are sometimes the same, sometimes they are not’

Michele Centenaro¹⁴⁷

We have argued that increasing demand for football is one of the areas of convergence of interests between clubs and UEFA, as confirmed by Thomas Kurth, the General Manager of G-14:

‘UEFA and the clubs have similar objectives as far as top level club football is concerned, which are to keep the game attractive, to maintain or increase the overall audience be it through the media, be it on site, to further develop the game, I think they have very similar objectives’¹⁴⁸

147 Interview with Michele CENTENARO

148 Interview with Thomas KURTH

Additionally, in times of globalisation and of a united Europe, both agree that there is growing demand for international competitions at the European level. But the convergence of interests stops at the high level. It is in the details that the divergences appear.

We can identify two major dimensions of divergences between UEFA and the clubs. The first is linked to the time frame of decisions made by these actors. While UEFA tries to implement a long term vision of development of the game, the clubs, by the nature of their activities and the pressures exerted by their stakeholders, have to make decisions with a much shorter time frame in mind. Lars-Christer Olsson explains the reasons for this:

‘The clubs operate on a day-to-day business. There are obligations and pressures that exist in this reality which UEFA does not face. They have to find finances for the salaries tomorrow, we do not. The environment is different. The clubs are immediately exposed to the competition between themselves. UEFA does not operate in this competitive environment. UEFA works on the long-term securitisation of football. The decisions we make today will have an effect in a year or two. We can already see the problems clubs face with short-term decisions. When there is a downturn in the market it is a disaster for the clubs. There is an immediate financial effect on the clubs.’ ¹⁴⁹

Peter Gilliéron, the General Secretary of the Swiss FA complements:

‘The pressures are different. The Clubs have a more constant daily pressure because of their daily contact with fans and stakeholders. They face their stakeholders every week for 10 to 11 months of the year being constantly interrogated by the press. UEFA suffers fewer pressures because of their limited contact with the stakeholders. The pressures they suffer are more indirect.’ ¹⁵⁰

The second dimension of divergence is linked to the fact that clubs, although aware of the general importance of collaboration with other clubs, still keep a very fragmented and individualistic view of the game. Since clubs want to pursue the best sporting performance, they must compete among themselves for the best players, and more recently, for the attention of the global market, and this, as we know, costs as much money as the clubs can get. UEFA on the other hand, has a more holistic view of the game and wants to make sure that the game as a whole is being developed, and this also costs money. As clubs and their governing body are often sharing the same ‘pie’, conflicts regularly break out about the most appropriate way to divide this pie. We have already shown that UEFA relies mainly on the organisation of UEFA Champions League and the Euro to fund its activities, and both competitions rely mainly on resources of the clubs. It is a complex task to convince the clubs of the importance of devoting a given share of those resources to the development of women’s football, amateur championships, or professional leagues in smaller countries such as Armenia or Moldavia, since they cannot grasp what is in it for them in the short run.

Finally there is the conflict along national team football. Although it is clear for the clubs that a competition like the FIFA World Cup adds to the popularity of football, eventually reverting in benefits

149 Interview with Lars-Christer OLSSON

150 Interview with Peter GILLIÉRON

for the clubs, there has been a great commotion lately about the right balance between club and national team football, with the clubs arguing that there are today too many meaningless matches and tournaments involving national teams.

3.1.3. LEAGUES AND C^LUBS

The nature of the divergences between leagues and clubs is similar to the one presented in the last section between clubs and UEFA. Although in general terms, leagues and clubs are both interested in the development and quality of the domestic competition, conflicts arise from the distribution of revenues.¹⁵¹

Leagues have two main concerns. First and foremost they want to guarantee that all clubs participating in the league will stay in business for the longest time possible, but at least until the end of the season. The fact that Fiorentina, a traditional Italian club was forced out of business because of financial difficulties had negative impacts for the entire Serie A of the Italian League. We can argue that an Italian league without Fiorentina alienates¹⁵² the interest of the Fiorentina fans immediately causing a reduction in the size of the Italian football market. The second concern of leagues is the production of a balanced competition in the sense that competitive balance will produce uncertainty of outcome, and unpredictability is one of the most important characteristics of the product supplied by the Football industry as argued earlier.

Szymanski and Kuypers¹⁵³ state that the main threat to the competitive balance of the league is the unequal earning power of the member clubs. They demonstrate through regression analysis of historical data of English Football, that in the long run, club expenditure leads to success on the pitch and success on the pitch increases revenues. However there are some external constraints in the earning power of clubs as clubs have different fan bases. Although clubs can try to increase their fan base by increasing their winning ratios and by using modern marketing strategies, there are a number of variables over which clubs have little control that limit that action. Those variables are for instance, the size of the club’s catchment area and the tradition of the club. As a result of the different sizes of fan bases, the natural share of income between clubs will be uneven, thus harming competitive balance as the richer clubs will always be able to bid higher for the most talented players. The most common way to address that imbalance is by cross-subsidization, or to make use of a less economic and more romantic term: solidarity. In practice it means that the league draws on revenue distribution among the member clubs. The most common forms of revenue distribution utilized by leagues are

151 This divergence has been highlighted last April by the crisis that broke out between Bayern München (BM) and the German football league after the latter announced publicly the existence of a secret contract between the now bankrupted company Kirch and the most successful German team. This contract implied the payment of 90 million euros by Kirch to BM over five seasons, ending in 2004-2005. It was meant to compensate the loss suffered by BM in a process of central selling of the rights of the German championship so that BM would not support an eventual reform toward individual selling where the latest German champion could obviously increase its revenues. In the end, only 21,5 million euros were paid by Kirch before it went bankrupt but the announcement of this agreement and the critics of BM’s attitude by some league representatives did not please BM managers whose behaviour was characterized as ‘morally reprehensible’ and who decided in April to withdraw temporarily all their representatives on league commission as a protest signal. www.fcbayern.st.fr

152 Alienates or at least reduces. Since one of the characteristics of football fandom is the lifelong loyalty of allegiance to a club, we can argue that although it is possible that a Fiorentina fan will still turn on the TV to watch a match between Roma and Juventus their level of consumption of football will drastically decrease.

153 SZYMANSKI & KUYPERS, Winners and Losers – The business strategy of Football, Penguim,1999

some sharing of gate receipts between home and away team, and the central exploitation by the league of the commercial and TV rights of the competition for further redistribution among the clubs.

The league would be the best positioned body to coordinate revenue sharing since although each club recognises the incentive to co-operate in order to improve the outcome for all, each club privately has an incentive to opt out of any agreement and pursue its own interests.

But the current configuration of the European football competition scenario adds complexity to the equation, as explained earlier. In order to be competitive at the European level, a club must invest in addition to the level necessary to be competitive at the domestic scenario. This creates a conflict of interest between these two scenarios. The richer clubs will not be as willing to redistribute their revenues at the domestic level, since this would harm their competitiveness at the European level. It is no surprise that top clubs will pressure against the national league for the reduction of revenue distribution measures to a minimum level necessary to guarantee the survival of the domestic league, thus producing imbalance at the national level. Put in simple terms, if Manchester United, Arsenal and Liverpool distribute too much of their revenues to the poorer clubs in the Premier League, they will lose competitiveness against Milan, Real Madrid, Juventus, Bayern München. But at the same time, there will be no Premier League with only three clubs, and as shown earlier in this paper, the domestic scenario still represents the most important source of revenues for club football.

3.1.4. G-14 AND OTHER CLUBS

From our chapter on clubs we have seen that most clubs are engaging in similar financial and human resource management practices to pursue their objectives. Here we analyse specifically the areas of convergence and divergence between the top clubs forming the lobby group and their siblings.

The first of these areas of convergence is that clubs want to have a voice in the decisions of football’s management. Geneviève Berti states that “all clubs want a voice in the game, but G-14 groups the clubs best-placed to speak because of their status”. ¹⁵⁴

A second area of convergence is the fact that clubs need each other to produce a championship. The clubs in G-14 need their less glamorous domestic opponents to produce the domestic league, which is their main source of revenues, as shown before. But the dependence between G-14 and other clubs is not only financial, but also in terms of the supply of talent. Figure 3.3 illustrates that. We have selected the most important players of the G-14 clubs at the latest edition of the UEFA Champions League based on their performance on the pitch and their ability to attract audience. Although we recognise that the selection criteria still bears some degree of subjectivity, as football fans could argue for hours and still not agree on what the most important players of their teams are, we believe the list of players selected is representative. Our analysis show that from a list of 42 selected “stars”, only 8 were formed by G-14 clubs. The remainder has been formed by a large variety of clubs including clubs that will

154 Interview with Geneviève BERTI