A succinct political economy of the UEFA Champions’ League

The final of the UEFA Champions that will take place in Lisbon on May 24th is remarkable for a number of reasons: it will oppose two teams not only from the same country, but from the same city (Real and Atletico Madrid), none of which actually won the Spanish Liga last year (FC Barcelona did). Such a final would have been impossible in the 1980s and early 1990s, when only the winner of each national league was allowed to take part in the most prestigious European club competition. In 1986, Steaua Bucarest won the European Champions Clubs’ Cup, as it was called then (against Barcelona, on penalties), and in 1991, the Red Star Belgrade won against Marseille, again on penalties. Nowadays, it would be difficult to imagine Red Star or Steaua winning the competition, partly because it has become much more difficult for the champions of low-ranked national leagues such as Romania or Yugoslavia to actually make it to the group stage.

This year, Steaua Bucarest had to go through two qualifying stages to make it to the pool stage; the Romanian league is granted one representative, providing it makes it through the qualifying rounds. By contrast, up to 4 teams of the best – and richest – national leagues (England, Spain, Germany) can take part in the Champions League, and they will have up to 5 or 6 clubs as from 2015. In total, up to 7 clubs from each of these countries currently take part in Continental competitions, Europa league included. It is true that if the share of the cake of rich countries has expanded, the size of the cake has also increased with the multiplication of participants in the competition (from 16 teams in the group stage in 1996 to 32 teams in 2013). However, what we have witnessed over the last 20 years is a considerable movement of concentration where the richest clubs are almost guaranteed a spot in the Champions League and its huge TV revenues, while the league winners of smaller football nations have to go through a number of hurdles to access it. How can we explain this evolution?

Until 1992, the European Champion Clubs’ Cup was a straight knockout competition where only the champion of each national league, and possibly the winner of the previous competition, were allowed to enter. Straight knockout entails a great degree of risk for bigger clubs, as they are not sheltered from a bad game, or an elimination on penalties. However, the financial stakes back then were not as high as they are now because of two big limits on revenues. First, the number of bidders for TV rights was smaller and essentially limited to public TV broadcasters; the number of private TV channels was nowhere near what we see today. Second, the market for football players was subjected to the equivalent of massive import quotas, as clubs were not allowed to field more than three foreign players in their team. For European competitions, Welsh, Scottish or Northern Irish players playing in English teams were even considered as foreigners and therefore included in the quota of foreign players. Hence, the demand for players was smaller because only few foreign players could actually employed, and salaries were also much lower. Besides, the bargaining power of players was also limited and the balance tipped towards their employers, since they needed the agreement of their club to leave, providing a transfer fee even if their contract was ended. This would change dramatically with the Bosman ruling, which completely transformed the face of European football.

How the Bosman ruling changed European football

Jean Marc Bosman was a Belgian player whose contract with Belgian club RC Liege had expired in 1990, and wanted to move to the French side FC Dunkirk. However, Dunkirk refused to pay the transfer fee asked by Liege, and Bosman was left unemployed. Bosman took his case to the European Court of Justice, which ruled in 1996 that the restrictions on the number of foreign players in European football clubs contravened to the principle of free movement of workers in the European Union, and that the payment of transfer fees when players’ contracts had expired was illegal.

The implications of this ruling have been massive. First, the best – and richest – clubs now had access to all the best European players, contributing to a massive take-off in the attractiveness and revenues or the best football leagues – England being the prominent case – but also to a massive concentration of talent in a few very rich leagues. The best players in each European league could now move freely to the richest leagues in pursuit of higher salaries. While a team like Ajax Amsterdam was able to win the Champions league in 1995 and reach the final in 1996 with a pool of almost exclusively home-bred players (Davids, Kluivert, Frank & Ronald de Boer, Rijkaard, Seedorf, Overmars and others), after Bosman it has become increasingly difficult for a team like this to retain its excellent young players for long in the face of the much higher salaries that British or Spanish clubs are ready to pay for them.

Before Bosman, the demand for young foreign players was limited because clubs couldn’t make them all play anyway. Nowadays, teams such as Chelsea or Arsenal regularly field teams with no or very few British players, and regularly recruit very young foreign players even before they have played for the professional clubs that have formed them. The increase in demand for foreign players contributed to the skyrocketing salaries of the best players, as the demand was no longer limited by quotas. Moreover, the scrapping of out-of-contract transfer fees gave more power to players and their agents to negotiate higher salaries and sign-in fees, agents taking a cut in ever bigger deals. Before Bosman, players could not threaten their employer to leave at the end of their contract; after Bosman, players could ask higher salaries in order to stay. In 1996, the world’s biggest transfer was Alan Shearer’s 15 million GBP move from Blackburn to Newcastle. In 2013, Gareth Bale moved from Tottenham to Real Madrid for nearly six times that amount (86 million GBP).

With the increasing attractiveness of the bigger leagues able to recruit the best players and the multiplication of private TV channels competing for TV rights, there was a lot more money to be made in the football business than in the past, but also much bigger salaries to be paid to star players. In 2013, Premier League clubs paid 1.6bn GBP in players’ wages, while the TV rights of the Champions League for Britain were acquired for 1bn GBP by BT sports, a branch of the privatised former telephone monopoly, thereby outbidding Sky and ITV. From the late 1990s, the Champions League was to become the most lucrative European competition precisely because it would be the place where all the best clubs from the richest leagues would play against each other, and therefore where the most expensive TV rights could be sold. Now, restricting access to the competition to only one club per country meant a severe loss of potential revenue for many of the big clubs in Spain, England, Italy or Germany, especially since they needed these revenues to pay the skyrocketing salaries of star players. Hence, they needed to guarantee their steady participation in the CL bonanza.

In order to defend their interests, the richest clubs formed the “G14” in 2000, a lobby group whose aim was to put pressure on the UEFA and FIFA on behalf of the big clubs, for instance by forcing them to pay the salaries of their players while playing for international competitions such as the World Cup or the Euro. In this context, the G14 also wanted better guarantees to participate in the lucrative Champions League. A major lever of blackmail was the threat to form its own closed international competition gathering all the major clubs, as outlined in a policy document leaked in 2006. Such a model is already practiced in European Basketball: the “Turkish Airlines© Euroleague Basketball”, for instance, the basketball equivalent of the UEFA Champions League, works with a system of licenses where 13 rich teams are guaranteed to take part in the league more or less independently of their national performance, a bit like the US system of franchises in the NBA or NFL. Basically, the Euroleague model is what the richest football clubs threatened to do in order to guarantee their TV revenues: if they weren’t granted more spots in the Champions League, they would go and form their own European League where Barcelona, Real, Manchester, AC Milan or Arsenal would play against each other, deserting official UEFA competitions and basically emptying them from their interest.

To use a concept by the economist Albert Hirschman, they used their power to “exit” in order to increase their “voice” within European football competitions. Eventually, the G14 disbanded in 2008 and accepted to abandon its court cases against UEFA, but only after significant concessions were granted as to the influence of the big clubs in the running of football competitions (e.g more Champions League spots), and the creation of an official body within UEFA for clubs’ interests, the European Clubs Association gathering about 200 members. However, tensions about revenues are still present. In 2007, UEFA president Michel Platini, championing an agenda of democratisation of the competition, changed the rules again so as to allow better chances for winners of lower associations, who would be competing against each other for five spots in the pool stage instead of playing against runners-up from the big leagues. As could be expected, big clubs whose chances to access the TV revenues were not amused. In 2011, the “exit” threat to create an alternative competition of the biggest clubs was revived. The 10 bigger clubs argued that they would no longer be committed to take part in UEFA competitions after 2014, and would be free to set up their own competition in which they could manage the revenues and TV rights themselves without UEFA. A board member of ECA was explicit about it:

“The fact that Bayern Munich, who have always been close to the institutions, are being so vocal and loud about the situation is a clear sign we’re very close to breaking point. We have a memorandum of understanding with Uefa that expires in 2014. After that time we can no longer be forced to respect FIFA statutes or UEFA regulations. And we won’t be obliged to compete in their competitions.” When asked what that would mean for clubs’ finances if they were to withdraw from the Champions League, which generates tens of millions of pounds a year for his organisation’s richest and most influential members, the ECA board member responded: “Don’t be naive. Don’t think there would be no alternative competition.”

Now, a compromise could be found in the new memorandum of understanding between the UEFA and ECA which runs until 2018, but beyond that, the creation of a closed European super league may become a reality, as acknowledged by Istanbul’s Galatasaray Chairman in October 2013. So far, threats of exit by the richest clubs have contributed to increase their power within the UEFA and increase their representation in the competition. In the long term, however, an actual exit and the creation of a closed European super-rich, super-league may enable them to manage their own revenues. In the even longer term, and since the multiplication of games per season has been a major concern for clubs, one could even imagine the disappearance of national leagues, or national leagues devoid of the best teams, who could play a season-long championship against the best teams from other countries. In the future, it could not only be near- impossible for teams such as Steaua Bucarest or Red Star Belgrade to win the Champions league, but plain impossible because they wouldn’t be allowed to take part in the first place.


Why footballers (may) deserve ridiculous salaries and bankers don’t

In spite of £8.2bn pounds in losses, the Royal Bank of Scotland is going to pay £588m in bonusses to its staff. The CEO of the – taxpayer-owned since 2008 – bank said that the issue of bank bonuses was a sensitive one, but that “I need to pay these people fairly in the marketplace to do the job”. The argument that is often put forward to justify the high salaries of bank executives – or of any executive, for that matter – is that they are like top footballers: they have a very specific set of skills, and if their salary doesn’t match up what is offered by the competition (other football clubs, other banks), they are going to go elsewhere. Greg Mankiw, for instance, recently commited another piece defending the one percent by drawing on similar or connected arguments. Moreover, since objections to banker salaries are allegedly only based on envy, we should also be angry at footballer salaries and the ridiculous amount of money that Wayne Rooney of Cristiano Ronaldo receive every month.

I think that the conflation between bankers and football players (or singers, or actors) as two similar categories of jobs is highly misleading if one considers the marginal value of individuals and their replaceability as determinants of value. As good way to assess these two factors is to replace both bankers and footballers by chimpanzees.

First, I  have my doubts about the added value of one particular individual to the collective endeavor he/she is a part of in the context of banking or large corporate structures. I simply cannot understand how the added value of only one person in an organisation which counts many thousands of can be justified by salaries sometimes a million times higher than the grassroots employee. If you remove Brady Dougan from the headship of Credit Suisse and replace him with a chimpanzee, probably not much will change in the short term because thousands of other people work in the bank and ensure its daily operations. Arguably, the bank may actually do better. Remove Diego Maradona from that game against England in 1986 (and replace him with a chimpanzee) and you have a completely different outcome. Remove Humphrey Bogart from Casablanca and you have a totally different movie. The marginal contribution of football players and actors is much bigger than that of CEOs.

Second, and perhaps more importantly, the individual characteristics of corporate managers (which influences their replaceability) matter much less than those of football players or actors for the product that they are selling. In this respect, football players are much less replaceable than CEOS. I do not have a bank account with Natwest because of its CEO (whose name I don’t even know), and I do not buy a MacBook because Apple is headed by Tim Cook. People more or less place the same value in a product of service even if its CEO changes. However, I may go to see a movie because it’s got Kevin Spacey in it. Similarly, Real Madrid bought Cristiano Ronaldo because of his possibly unique free kicks and speed, but also because they can sell millions of overpriced shirts with “Ronaldo” (and not “chimpanzee”) written on them. It is much more difficult to replace them because they are part of the product themselves. I am not saying that the contribution to humanity of Cristiano Ronaldo is bigger, but many parallels often made in the press about the low replaceability of managers – especially by managers themselves – are simply not justified. I simply do not buy the idea that there are only a small handful of people who can run a big bank, but I may agree that only a handful of people can shoot free kicks like Cristiano Ronaldo.