EU brings football to market

Date: 25/04/1996

By Tim Jones

SERAING hardly ranks up there with Milan, Manchester United or Real Madrid as an icon of football history.

But a small football earthquake at the Belgian club in the early hours of Tuesday 2 April 1996 is likely to send shock waves throughout the European game.

Two years ago, the Belgian city of Liège had three professional football clubs - Standard, Seraing and RFC Liège.

From the beginning of the 1996-1997 season, Standard will be the city's only representative.

Three weeks ago, Seraing announced that it was to close at the end of the season and merge with Standard.

The club's businessman benefactor, Gérald Blaton, had been sinking money into the club for years, raising it from the depths of division three to the early rounds of the UEFA Cup. But the club continued to haemorrhage money and a ruling from the European Court of Justice earlier this year pushed it over the edge.

When the Court found in favour of Belgian footballer Jean-Marc Bosman and upheld his case against the now-defunct RFC Liège in January, cries of complaint rang out about the likely consequences of its ruling.

But Seraing's experience says more than any spokesman ever could.

Football has long been financed by a system under which players were spotted and trained by one club, then bound under contract. Small clubs could survive simply through their ability to find and nurture young talent and then sell the players for a fee, even if their contracts had expired.

RFC Liège took this too far. In 1990, when Jean-Marc Bosman's contract with the club expired, he accepted an offer from French club Dunkerque, but was prevented from moving because of differences between the two clubs over the transfer fee.

In a landmark ruling, the Court found that clubs could not exact a fee for players out of contract.

Suddenly, players wanted short contracts. Small clubs could not guarantee a return for all the years of training they had invested in players.

Liverpool FC's midfield player Michael Thomas provides an example of the new trend. Now out of contract, Thomas is attracting interest from Italian clubs while, at the same time, Liverpool is trying to negotiate a new contract with him.

He is refusing to sign unless Liverpool can guarantee him a place in the first team. So, for now, he is signing weekly contracts in the knowledge that he could leave at any time and name his price.

Along with the transfer ruling, the Court increased the incentive for bigger clubs to scout for cheap talent in other countries. The so-called 'three plus two' rule, which limited clubs playing in European competitions to fielding only three non-national plus two naturalised players, was declared illegal under EU single market rules.

For Seraing and Blaton, this was the last straw. The club had thrived through its youth programme - with 600 boys on its books at any given time - and by buying in cheap foreign nationals.

In the wake of the ECJ judgement, Blaton pulled the plug.

Seraing is sure to be just the tip of the iceberg. In Belgium alone, there is talk that the four clubs in Antwerp will soon narrow down to one and this trend is likely to be repeated across Europe as more money piles into the leading clubs with no obligation to let some of it trickle down to their lesser-known counterparts.

Right across the Union, power is being concentrated at the top as football undergoes the kind of restructuring experienced in every other industry over the past ten years.

Many clubs are aiming simply to survive, while others are increasingly turning into businesses. While Italy and Spain still lead the way in attracting money into the game, it is in the UK where clubs are truly entering the business arena.

Until the early Eighties, clubs throughout the English football league shared 'gate' receipts - income from tickets sold - but this ended in the run-up to the creation of the Premier League.

Since then, big club power has become more concentrated. Transfer fees have ballooned from the Eighties, when a million-ecu transfer was still a rarity, to last season's purchase by Liverpool of Nottingham Forest's star striker Stan Collymore for a national record of 10 million ecu.

As demand for capital increases, clubs are going to the stock market to find money. Manchester United and Tottenham Hotspur are both listed as leisure companies on the London stock exchange, their share prices rising and falling depending on how they perform each Saturday afternoon. Manchester City, West Bromwich Albion and Preston North End are all talking about raising capital on the markets.

The next big issue will be that of London club Chelsea. Its holding company, Chelsea Village, has already listed 6.4 million shares to establish a price and has announced its intention to raise 60 million ecu over the next five years to invest in players - and in a leisure complex based at the team's West London stadium.

The problem for businessmen is that football remains an investment unlike any other. While, on the face of it, a football stock mirrors the performance of any other listed share - going up when the company performs well or possesses valuable assets, and falling when the prospects of profits wane due to poor performance - it also has major snags.

In any other company, a chairman might face criticism from his board or shareholders if the value of the stock falls, but he is hardly likely to be abused, threatened or spat at. Computer company boss Alan Sugar soon discovered the difference between running Amstrad and Spurs.

The other major problem for investors is club valuations. Tottenham has long complained that the stock market undervalues its major stock of assets - its players.

But the market is right to be sceptical about player valuations, according to stockbroker Robert Ellis, who is managing the Chelsea flotation.

“The market is very volatile,” he says. “The big problem is what happens in the transfer market. Each club treats transfer valuations in a different way. In my view, they should be kept off balance sheets and treated as an extraordinary item.”

With the Bosman ruling, big clubs saw millions wiped off their balance sheets as the residual value of top players declined.

“You cannot value a football team at any given moment,” says Ellis. “How do you value a footballer? He could be worth six million pounds (7 million ecu) today and two million (2.4 million ecu) tomorrow if he is injured. If you add up the transfer value of the Chelsea squad, it would come to the same as ten acres of land in central London. That is ludicrous.”

John Williams, senior researcher at Leicester University's Centre for Football Research, echoes this, saying: “There is an enormous amount of money around in football at the moment compared with how much there was five years ago.”

But while the financial sophistication is in the UK game, the big bucks are still where they have been since the Eighties - in Italy and Spain.

To judge the true wealth of the national game, transfer fees are less of a guide than players' wages and, in this respect, Italian clubs dominate.

Despite winning the European Champions Cup last year and threatening to repeat the performance, Ajax Amsterdam cannot hold on to its star players when Italian wages beckon.

Unlike Milan or Barcelona, the club operates by spotting talented boys and bringing them into the club youth teams from the age of nine. It raises them in the club culture and playing system before eventually selling them on. This approach has raised 25 million ecu every year for the past five years.

But these lucrative times are under threat from Bosman. The contracts of young stars Edgar Davids and Michael Reiziger will expire in the summer, and hot property Patrick Kluivert could well be on his way to Milan to join Silvio Berlusconi's astronomically priced squad.

The real money now comes from showing matches on television.

This trend is set to gather pace if the European Commission emerges victorious from its latest clash with UEFA - this time over attempts by Europe's football governing body to ban the live transmission of some top games to keep the fans on the terraces and protect revenue from ticket sales.

Whatever the outcome of this battle, a revolution in the soccer world now seems unstoppable. Most industry watchers are convinced that a European Super League based on money from television audiences is on its way.