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Business

Hard Times for European Soccer

Soccer may be as popular as ever in Europe, especially in the aftermath of the World Cup. But teams are struggling to stay afloat financially, and managers are slashing superstar salaries.

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Europe is struggling to keep the soccer ball rolling

With just a few weeks before the start of the new soccer season, soccer clubs in Europe are finding themselves in a difficult position. Their teams and sport are as popular as ever, but the money available for hiring new players is considerably less than in previous years.

Spain’s traditionally-favored club and current Champions League winner Real Madrid, for instance, was forced to freeze its entire budget for new players this year. According to the team’s general manager, Jorge Valdano, Real Madrid is going through the same thing every other Spanish team is experiencing. All soccer clubs in Spain are facing the biggest financial crisis in decades, he says.

Forced time-out for soccer clubs

All of Europe, including Germany, is going through tough times soccer-wise. Big teams are going through budget-cuts, and slashing new players’ salaries. Smaller teams are declaring bankruptcy and closing their clubs altogether.

The German Bundesliga is under such tight budgetary restraints that only 100 million euro ($100 million) is available for new players in the upcoming season. That’s a quarter less than in the previous years.

The main reason for the strapped budget in German clubs is a 20 percent reduction in income from televised games.

Until declaring bankruptcy in April, the media giant Leo Kirch paid 375 million euro ($375 million) per season to the Deutsche Fussball-Liga (DFL), the umbrella organization for Germany’s soccer clubs, for broadcasting their games. The DFL in turn distributed the money among the 36 professional clubs in the first and second leagues. Each club in the first league received an average of 15 million euro ($15 million) per season for the air time. Each team in the second league received four million euro.

Since the Kirch Media conglomerate went bankrupt, Germany’s soccer teams have felt their cash flow dry up.

Time is money on air

Sales for television broadcasts of games account for between 9 and 40 percent of soccer clubs’ budgets in Germany. From year to year, teams depend on this near certain source of income to pay for players salaries. Compared to other countries, such as Italy, German teams’ dependence on air time is relatively low.

Italy’s first league teams (Series A) receive approximately 60 percent of their annual budget from broadcast sales. But this year two pay-per-view stations, Stream and Telepiù, have been unable to pay teams for broadcast rights. As a result, eight Italian soccer clubs will be starting the season without a contract with broadcasters. They’ll be forced to make drastic cuts in spending.

Bookkeeping like on the New Market

The loss of such a large portion of their annual budget has led Europe’s soccer teams to rethink the way they balance their books.

Uli Hoeness, manager of FC-Bayern in Munich, describes the hard times in Europe’s soccer clubs as something that was to be expected. "Finally there’s a reason for what has been sneaking up all these years: Soccer clubs are spending beyond their limit, " he explains.

The Bundesliga is overrated like the New Market, Hoeness says. The constant buying and selling of players over the last few years resembles trading on the stock market and the dealing in options.

In reality, new players with salaries in the two-figure millions often do very little for their team other than make headlines when they switch teams. They spend most of their time warming the bench or when they enter the field, it’s for a short cameo appearance in the last minutes, Hoeneß says.

Record transfers like that of the French player Zinedine Zidane from the Italian club Juventus Turin to Real Madrid for 76.7 million euro ($77.5 million) will no longer be possible in the future. With the purchase of Zidane in 2001, Real Madrid pushed its players’ fees to over 400 million euro. Only the sale of the team’s private training field could pull the 100-year old Madrid out of the red.

In Italy a similar discrepancy between earnings and spendings was visible even before the television crisis hit home. In 2002, the teams in the Serie A had paid salaries totaling 868 million euro. Less than half of that money was covered by the teams’ regular income. They were spending far beyond their limit.

Throughout the European soccer scene, the trade in players has been mainly about speculation, and now the bubble has burst. Many teams got burned buying new players, and this year they’re forced to take a good hard look at the bottom line.

"It’s perfect," Hoeneß says pointing to the chances for improving the soccer market in the future. "Finally, reason and caution have entered the picture."