Last week Rangers F.C., the Scottish Champions, went into administration (a state of being unable to pay their debts) after they were unable to pay their tax bill. Rangers currently owe Her Majesty’s Revenue and Customs around £49 million and have not been able to make any payments. Rangers are probably the highest profile casualty in recent years but there have been plenty of others.
Leeds United famously took out loans to buy players based on the gamble that they would win the Champions League and Premiership in 2001.
Portsmouth FC went into administration in 2009 and was relegated from the Premiership. They have gone into administration again this season.
ACF Fiorentina became bankrupt in 2002 and had to reform starting in the bottom division. Teams making financially risky decisions has been a part of the game since its inception but now the stakes are higher.
At the moment there are many clubs that are overspending and paying out each year more than they make in revenue. FIFA is set to introduce new rules in one year’s time that will help regulate club spending in order to prevent clubs from reaching bankruptcy.
The new Financial Fair Play rules essentially state that a club must break even over a five-year period. The new rules would promote long-term development of clubs by encouraging them to focus more on youth player production rather than ever-increasing transfer fees. The guidelines would prevent clubs from gambling their financial security on hypothetical league positions in the future.
Clubs would only be able to pay players what they could afford to pay them (and pay them on time), which might bring down player wages from the astronomical amounts currently spent on wages. And most importantly, with financial security the fan’s emotional and financial investment in the club is secure. The rules are there to protect the fans as well as the clubs and the players. Leeds, who went down to the third division after going bankrupt, because they were docked 10 points, and the fact that 27 clubs in the top two divisions in Spain are in some sort of administration, show that new financial rules need to come into effect.
These would help the lower league clubs not only through more equitable distribution of TV revenues in Spain and to lower player wages, but also to provide boundaries and limits to prevent future financial problems.
The downside to the new rules is that only the big clubs will ever win anything. The biggest clubs in the biggest leagues will always win. Even Chelsea may struggle with the new rules since they are subsidized by an outside source in their chairman Roman Abramovich.
Only teams with huge stadiums and multinational merchandising abilities will be able to win anything.
The Premiership would probably lose Manchester City, Chelsea and Tottenham from the title race because their stadiums are not big enough to compete with the power of Arsenal or Manchester United (or even Newcastle who should do well by the rule changes). Some smaller clubs like Wigan might drop out, as their fan base cannot sustain a Premiership club.
Even Premiership perennials such as Everton and Fulham might struggle to stay up due to the new rules. There are clubs in the lower divisions such as Nottingham Forest that have large stadiums and so could come to dominate with the new rules. This change could disturb the whole balance of football in England and other countries that rely on billionaire owners to fund their teams.
Though these rule changes would likely change the power structures in England, Spain and Italy, there would be limited change in German football. Germany is the exception to the rule that football clubs are bailed out by millionaire owners.
German football relies on large crowds and an extensive youth system to survive. German clubs are often partly owned by the fans. The German model is that fans must own over half of the club shares. This makes the club more responsible to the fans and in turn affects the club’s finances.
The clubs are already regulated by strict financial rules, and can therefore sell cheap tickets to fans ($15 at Bayern Munich) and also have very low amounts of debt.
While Bayern Munich has no debt and still has a team with world stars, Manchester United has currently £439m of debt and are not in the Champions League.
Germany also has a greater variety in Bundesliga winners that other top leagues and a very well developed national team to back up their financial regulation policy.
The new rules would shatter the structure of the game for a number of years: players would probably be forced to accept lower wages no matter what club they play for, the leagues would have to reorder with the clubs with larger stadiums rising to the top, international competitions such as the Champions League would likely become more competitive. Then the changes would stabilize: clubs would benefit by having better youth programs and greater financial security.
These rules will come into play in 2013, and will be the largest sporting revolution since the destruction of the wage cap in 1961 and the Bosman ruling on free transfers in 1995.
James is a sophomore. You can reach him at firstname.lastname@example.org.