Can the MLS succeed where EPL/Europe Failed

[Trax]

As you can see the next article states that most big names european clubs survive on a pile of debt.

Do you believe MLS, and MLS clubs will be able to avoid that trap.

http://espn.go.com/sports/soccer/news/_/id/5580467/european-football-eating-itself

[Guest Ed]

Sure. All they have to do is look at how the Bundesliga is managed which they obviously avoided bringing into the story.

[RJB]

Sure. All they have to do is look at how the Bundesliga is managed which they obviously avoided bringing into the story.

Perhaps the Bundesliga is the exception that proves the rule.

[SthMelbRed]

Actually, with the obvious exception of Chelsea and Man City, the top clubs in England (Man Utd, Liverpool, Arsenal, and 'Spurs) are highly profitable businesses. The massive debt that the Glazers and Hicks/Gillett saddled Man United and Liverpool with was not operating debt. The problem in England is that clubs lower down the food chain over spend in transfer fees and wages in order to try to keep up with those higher up and to preserve Premier League status, leading to dangerous levels of debt at the mid- and lower-table clubs. Such a situation will not arise under current MLS arrangements because the top clubs (in size and income, not on-field performance) are restrained by the system from pressing their financial advantage over the rest of the league.

[tmcmurph]

Not only does Germany have a solid foundation financially I really like the way they do the 80/20 split of TV revenue with D1/D2. To them it seems to be a national program to keep as many teams solvent as possible paying as high a salary to as many players as possible. In England it is EPL getting 100% and everyone else is on their own.

I think you will see a salary cap in Euro leagues before too long. Dozens of times that of MLS but having a ceiling does impose discipline financially on management.

[Macksam]

Actually, with the obvious exception of Chelsea and Man City, the top clubs in England (Man Utd, Liverpool, Arsenal, and 'Spurs) are highly profitable businesses. The massive debt that the Glazers and Hicks/Gillett saddled Man United and Liverpool with was not operating debt. The problem in England is that clubs lower down the food chain over spend in transfer fees and wages in order to try to keep up with those higher up and to preserve Premier League status, leading to dangerous levels of debt at the mid- and lower-table clubs. Such a situation will not arise under current MLS arrangements because the top clubs (in size and income, not on-field performance) are restrained by the system from pressing their financial advantage over the rest of the league.

How is Chelsea an obvious exception? Arsenal I think is the only one that is self sufficient while the others are losing money. United just reported a loss a couple weeks back.

[Cheeta]

I don't know. I just find it very, very, hard to imagine a salary cap in any major European league. UEFA is just such a completely different animal compared to anything you'd find in the North American sports-entertainment experience. Don't think the bigger UEFA clubs, the ones who bring 100s of millions of euros of TV revenue to the cup competitions are the least bit interested in any idea of a "salary cap". Of reducing the competitive field to accommodate the lowest-common-denominator.

And until they are, a player salary cap isn't going to fly.

[SthMelbRed]

How is Chelsea an obvious exception? Arsenal I think is the only one that is self sufficient while the others are losing money. United just reported a loss a couple weeks back.

Chelsea and Man City are the exceptions because they are not run as businesses but as play things for a couple of obscenely rich men. Man Utd is the most profitable football club in the world. Their annual operating profit dwarfs any other club. They have posted huge losses over the past few years because they are paying off the interest on the massive debts that the Glazers took out to purchase the club. Liverpool is also a very profitable club but were similarly handicapped by having to pay acquisition debt imposed on the club by the previous owners.

[Richard]

Is the Bundesliga a single entity, by that I mean their top division isn't a separate business altogether as the EPL is in England and MLS is vs NASL and USL?

[Guest Ed]

Is the Bundesliga a single entity, by that I mean their top division isn't a separate business altogether as the EPL is in England and MLS is vs NASL and USL?

Top two flights are 'single entity' in that they are operated by the DFL. Not to be confused with the German FA (known as DFB).

[Grizzly]

Top two flights are 'single entity' in that they are operated by the DFL. Not to be confused with the German FA (known as DFB).

Is it not the top 3 flights now that there is the 3rd Bundesliga?

Regarding the issue, I always take reports of sports teams' losses and debts with a grain of salt. There is a lot of creative accounting in this industry.

[Guest Ed]

I don't know for sure. I know the DFL manages the marketing of B1 and B2. Is 3L part of the same packagenow??

Here's what Wikipedia has to say, FWIW:

On 8 September 2006, the German Football Association, the DFB, announced the formation of the 3rd Liga. It was originally anticipated that the league's name would be 3. Bundesliga, but the DFB chose 3. Liga instead, reflecting the fact that the league will be directly administered by the DFB, not by the DFL (Deutsche Fußball Liga, English:German Football League) who runs the two Bundesligen[1]. This system is similar to France's Championnat National or Japan's Japan Football League, where the third tier is a unified semi-professional league directly run by the national governing body.

[Macksam]

Chelsea and Man City are the exceptions because they are not run as businesses but as play things for a couple of obscenely rich men. Man Utd is the most profitable football club in the world. Their annual operating profit dwarfs any other club. They have posted huge losses over the past few years because they are paying off the interest on the massive debts that the Glazers took out to purchase the club. Liverpool is also a very profitable club but were similarly handicapped by having to pay acquisition debt imposed on the club by the previous owners.

That may have initially been the case with Chelsea but in the last two or three years, they have been run as a businesses more so than Man United has. Also, United may be worth the most money, but when it comes to profitability, that's very debatable. If you post a loss, regardless of the reason, you are not profitable.

[SthMelbRed]

^Not only are you entirely missing the point, you are also very badly misinformed.

[AvroArrow]

That may have initially been the case with Chelsea but in the last two or three years, they have been run as a businesses more so than Man United has. Also, United may be worth the most money, but when it comes to profitability, that's very debatable. If you post a loss, regardless of the reason, you are not profitable.

Here's a simple way of creating a loss:

Let's say I own a company that is currently sitting with a $500,000 profit 1 day before my year end. I then pay myself a $500,001 management fee. Now my company has a loss of $1, but I have $500,001 sitting in my pocket. Now I go cap in hand to the powers that be and plead poverty. After all, my company was not profitable.

[MuirtonPark]

Although much of this discussion is about debt, it's interesting also to compare operating losses with, for example, the NBA. Here is a February 2010 quote about it:

"But Stern on Saturday rolled out another figure he believes needs to be out there: $400 million. That's the total amount of money he says NBA teams will lose this season. Stern also spoke of losses of at least $200 million per season in the first four seasons of the current collective bargaining agreement, 2005-09."

[Macksam]

^Not only are you entirely missing the point, you are also very badly misinformed.

Your notions of how Chelsea is run is very badly misinformed.

Here's a simple way of creating a loss:

Let's say I own a company that is currently sitting with a $500,000 profit 1 day before my year end. I then pay myself a $500,001 management fee. Now my company has a loss of $1, but I have $500,001 sitting in my pocket. Now I go cap in hand to the powers that be and plead poverty. After all, my company was not profitable.

Seems very criminal. I can't expect anything less from a team like Man U.

[SthMelbRed]

Your notions of how Chelsea is run is very badly misinformed.

In that case, please educate me how running up an operating loss of 45 million pounds equates to to sound business practices. In the seven years since Abramovich rescued the club moments before it was liquidated, they have managed to lose over a billion dollars. Is this a well-run business? If Abramovich walked away from Chelsea today, leaving it debt free, it's football and commercial income would not be able to sustain its current payroll and annual transfer spending. The club would either hurtle back into bankruptcy (where it was under Ken Bates) or have to drastically reduce its spending, dropping back down the table towards a level more comparable to West Ham United than Manchester United. The reality is that Chelsea has not been run like a responsible business in over 40 years (remember, the club's been on the verge of extinction twice in that time). I await your enlightenment on how this assessment is wrong.

[Gordon]

There has been a fascinating thread on the topic, with a lot of interesting facts and analysis about the financial status and debt implications provided by Canuckoranje. Canuckoranje looks beyond Europe as well. Well worth checking this out.

http://www.cansoc.org/showthread.php?39152-The-Financial-Implications-of-the-Great-Recession-and-the-Variable-Speed-Recovery

[Macksam]

In that case, please educate me how running up an operating loss of 45 million pounds equates to to sound business practices. In the seven years since Abramovich rescued the club moments before it was liquidated, they have managed to lose over a billion dollars. Is this a well-run business? If Abramovich walked away from Chelsea today, leaving it debt free, it's football and commercial income would not be able to sustain its current payroll and annual transfer spending. The club would either hurtle back into bankruptcy (where it was under Ken Bates) or have to drastically reduce its spending, dropping back down the table towards a level more comparable to West Ham United than Manchester United. The reality is that Chelsea has not been run like a responsible business in over 40 years (remember, the club's been on the verge of extinction twice in that time). I await your enlightenment on how this assessment is wrong.

They have slowly been decreasing their losses with every passing year and are becoming more self sufficient by the day. You have to look at the long term picture.

[jpg75]

Chelsea would be screwed without Abramovich, they've been losing money hand over fist for years.

Chelsea

Accounts for the year to 30 June 2008

Turnover £213.6m (up from £190.5m the previous year, a 12% increase)

Football Activities £189.8m

Hotel/Catering £8.9m

Merchandising £9.6m

Other commercial £5.3

Wage bill £149m (up from £133m in 2007, a 12% increase)

Wages as proportion of turnover 68%

Loss before tax £84.5m

Debts £701m owed to Roman Abramovich

[SthMelbRed]

^to be fair, since those numbers were released a couple of years ago, Abramovich has converted most, if not all, of the debt owed to him into equity. However, even if he were to walk away tomorrow, leaving the club debt-free, the club would be screwed. They would not be able to sustain their current level based on their football and commercial income alone. They would either have to borrow heavily in order maintain their position amongst the elite teams, meaning taking on ruinous debt, or to cut expenditures, resulting in a rapid drop down the table. Once the inevitable drop began, all of the recently converted Chelsea fans (read new fans since 2003) would undoubtedly defect to Man City. Remember, this is a club that often doesn't fill its ground, even when it's at or near the top of the table.