Through the Looking Glass Part-II: Club Ownership and Beyond

I recommend that you read Part-I of this article here. But hey, I’m no one to tell you how to lead your lives…Do what you will…

Have you wondered what it would be like to own your own football club?

I fantasized of being an Indian hybrid of Mark Cuban and Hugh Hefner, sitting up in the Ashburton Grove’s executive box, smoking a cigar (Cuban of course), swirling a tankard of the finest ale as I watched my ‘beloved’ humiliate European giants and grind giant egos into dust with consummate ease. Oh, I am also surrounded by a bevy of gorgeous super-models.

Needless to say, I woke up the next morning with a giant grin on my face.

Most fans these days tend to be aware of their own club’s owner(s) and maybe even few other clubs in the league (if only to mock them), but most remain ignorant about complex club-ownership models or policies across varying leagues, the governing bodies of the leagues and the unique rules that each league enforces.

Like any business, a sports club usually has one of the three models of ownership:

• Individual or family owned teams such as Manchester City – Sheik Mansour, Dallas Mavericks – Mark Cuban, Nottingham Forest – Al-Hasawi family etc.
• Teams owned by large corporations or conglomerates like Bayer Leverkusen owned by Bayer, New York Rangers by Cablevison, Aston Villa by Reform Acquisitions and so on.
• Publicly owned teams viz. clubs comprised of shares which are floated in a particular stock market in an IPO where investors are free to procure stock in the company; examples include Manchester United (to a lesser extent) and Green Bay Packers.

The aims and the nuances of ownership is a story for another day; for now it will suffice to know the three broad categories of owners.

Many leagues around the world function like a free market wherein the club’s ownership is neither neither controlled nor regulated, and the English Premier league is one such league. Owners may do whatever they please as the English FA has very few guidelines regarding the ownership or functioning of clubs. Hence, the English league boasts of a plethora of club owners who vary from capricious billionaires obsessed with winning and glory (Roman Abramovich) and owners who prefer to fly under the radar and keep their cards close to their chests, such as Ellis Short (Sunderland AFC) and Mohammed Al-Fayed (Fulham FC), to owners who are completely indifferent to the fortunes of their club or maybe have just forgotten that a sports club exists in their portfolios, such as Stan Kroenke (Arsenal FC) and even owners who actively siphon off funds from the club: the Glazer Family(Manchester United FC).

In many ways, the English FA’s stance on ownership may be seen as an accurate representation of an individual’s life in today’s world: survival of the fittest (or sometimes just the richest), where there are no safety nets to catch you if you fall. But this model has many pitfalls; the lack of financial parity and its nasty consequences are foremost among the lot. The number of teams in England declaring bankruptcy or undergoing the dreaded “administration” has been increasing over the past few years due to the lack of rules or guidelines to regulate the way in which a club is owned or run. The English FA are renowned for their pusillanimous decision-making skills, and their marked inability to address any issues of note is well-documented.

The Royal Spanish Football Federation too appears to have very little concern regarding how the clubs in Spain function. The recent crisis at Real Oviedo, where the club teetered on the verge of bankruptcy, portrays the sad state of affairs of football in Spain. The club was once a powerhouse of Spanish football but over time, it declined to end up in the 4th tier of Spanish football. Most opine that the decline in its on-pitch performance stemmed from the mismanagement of the club and its finances. The incumbent owner of the club had absconded after charges of tax evasion left the club hanging with a tax bill of €1.9 million. The club managed to scrape through by raising funds by a series of online petitions and appeals to buy the club’s shares which were being sold online at €10.75 a share, which attracted buyers from 60 different countries! Other benefactors included players like Juan Mata (CFC), Santiago Cazorla (AFC), Michu (SCAFC) who had started their careers at the club and multi-billionaire Carlos Slim (FYI he is the world’s richest man!).

In short: the majority of Spanish clubs reek of mismanagement and are often embroiled in issues that could have been avoided if informed decisions were made rather than easy ones.

But do not fear. Even the dank Spanish cloud has a silver lining in the form of a unique style of ownership wherein the club is owned by the supporters who may purchase a membership to the club in lieu of shares. The ‘socios’ (or members) then elect the president who is strictly prohibited from investing in the club or gaining financial control over the club. The socios form an assembly of delegates or an executive council which is the highest governing body of the club. This form of ownership has been found to be the most successful in Spain with clubs such as Real Madrid, FC Barcelona, Athletic Bilbao and Osasuna opting for such a system. The results speak for themselves.

While I researched the various ownership models of clubs the world over, I was dejected to see the number of clubs teetering on the edge of financial insolvency, but I was barely surprised that most of the clubs in Europe in are poor shape, rife with corruption, mismanaged and burdened by debt that indicated a habit of spending far far beyond their means – a mere reflection of the collective European economy. Denizens of the continent seem to be alien to the concepts of “planning” and “investment” and their hedonistic lifestyles of “living in the now” have brought their countries to their collective knees; their clubs are run along the very same lines, with only one nation being the notable exception.

No prizes for the guessing answer.

Deutschland, or as I like to call them, FROG (Federal Republic of Germany). The country that gave the world Oliver Kahn, Gerd Müller and BMWs has proved that its expertise is not only restricted to engineering and football but also financial planning, club administration, long-term vision and a penchant for following rules.

My apologies on sounding like a raging teutophile, but it is hard to not admire the Germans. They seem to possess a ‘work hard but party harder’ mentality and run their football league on similar lines. Strict ownership rules, a nationwide focus on youth development (post-2000) and structuring and control of how each club is run, have ensured that most clubs in the league are free from financial worry. Numerous clubs in the Bundesliga are not only sustainable but are actively profitable!

Profitability means that clubs are less likely to hock-off their best players in search of liquidity to fill the club coffers. This in turn ensures that the standard of football played by the teams in the league remains high, in stark contrast to Spain and France where the best players often migrate in search of greener pastures.

The “Lizenzierungsordnung” (or rules of governance) of the DFL (Deutsche Fußball Liga) is as a constitution is to a country. German football clubs are organized as “Eingetragener Verein”, which may be crudely compared to the functioning of a NPO (Non-Profit Organization). The Lizenzierungsordnung (I can’t pronounce it either, let’s call it “Liz” for short) not only regulates club finances, but also limits the percentage of debt that a club can take on and dictates the maximum volume of funds that can be allocated to player wages. Failure to comply with these rules invites banishment from the Bundesliga and that effectively puts the fear of the ‘flying spaghetti monster’ into most clubs.

The most interesting facet of the German football world would be the ownership policy captured in Article 8(2) of the ‘Liz’, which states that 50%+1 share of any football club will be owned by “club members” or supporters, which limits the amount of external investment into the club at 49.XX%. This effectively means that any significant decisions that are to be taken by the club will need the support of the fans. This prevents clubs being hijacked by rich millionaires who might treat the club as a mere toy or a source of amusement or try to burden the club with debt incurred elsewhere. The only exceptions of the “50%+1″ rule are: Vfl Wolfsburg, which is owned by Volkswagen, Bayer Leverkusen, owned by pharmaceutical giant Bayer and 1899 Hoffenheim, whose majority stakeholder Dietmar Hopp has deep links to the club and is well loved by its supporters.

While there are critics of the “50%+1” rule and cite it as the main cause of the low rate of external investment into German game, the rule goes to show how Germans continue to look at the big picture and focus on what’s important, namely, putting the fate of clubs in the hands of its supporters, which is exactly where it belongs.