Greater Players, Bad Business

Soccer in South America 

by | Apr 15, 2012

Merchandise for the Millionarios team on sale at a Bogotá stadium. Photo by Rory Miller.

 

Just as my final undergraduate exams finished in June 1970, the World Cup finals started in Mexico, and I settled down to three weeks of watching soccer. Across the world, fans of my age remember those finals—the first we saw on color television—for the unforgettable third World Cup victory with Brazil’s “Beautiful Team,” the magical squad that included Pelé, Gerson, Rivelino and Jairzinho. Since I was hoping my exam results would be good enough to obtain a postgraduate grant for research on Peruvian history, one match particularly enthralled me—Brazil’s brilliant 4-2 victory over a strong Peru side in the quarter-finals. I looked forward to seeing Peruvian stars like Teófilo Cubillas and Ramón Mifflín playing for Alianza and Sporting Cristal in Lima.

It would not be the same today. Of the 66 players in the Brazilian, Peruvian and Uruguayan squads in 1970, just one played for a club outside his home country (an Uruguayan who had crossed to Buenos Aires to play for River Plate). Compare that with the 2010 World Cup finals in South Africa. Just three of Brazil’s squad of 23 still played for a Brazilian team; twelve for clubs in Italy or Spain. The Uruguayan squad contained only two who represented teams in Montevideo; six played elsewhere in South America while the remaining fifteen were spread around seven European countries.

Why do so few South American fans manage to see the stars of their national team playing, except on television? Since 1995, when the European Court of Justice issued the so-called Bosman Judgment, which relaxed restrictions on foreign players in European leagues, star soccer players have effectively gained the freedom to play for whichever club they want, and, not surprisingly, they have flocked to the wealthiest teams in Europe. In 2010-11 the CIES Football Observatory counted 132 Brazilian and 111 Argentine players in the top five European leagues, as well as 93 from other South American countries. Lionel Messi, an Argentine who won the Ballon d’Or, FIFA’s award for the Best Player in the World, for the third successive year in 2011, moved to FC Barcelona at the age of 13 and made his first-team debut four years later. However, legal changes provide only part of the reason. Generally, the soccer business in South America has lagged behind the enormous commercialization of Western European soccer that has occurred over the last twenty years, even though countries like Brazil, Uruguay and Argentina continue to produce some of the best and most valuable players in the world. 

Conventionally, in Europe, we divide the revenues of leading clubs into three income streams: matchday (the money earned from spectators attending the game), media (mainly television, but also the Internet and mobile platforms), and commercial (mainly jersey and kit sponsorship, commercial partnerships and merchandising). In Western Europe, all three revenue streams have grown enormously since the early 1990s. According to Deloitte’s Annual Review of Football Finance, the English Premier League clubs earned $3.3 billion in 2009/10, with roughly half coming from media income and the remainder split between matchday and commercial income. The total earnings of the top five leagues in Western Europe reached just over $11 billion, $7.2 billion of which went for player salaries. 

The clubs participating in the Brazilian Campeonato, in contrast, earned just over $1 billion in 2010 (helped considerably by the appreciation of the real). The previous year, according to figures compiled by Brazilian financial expert Amir Samoggi, just over a quarter of Brazilian clubs’ revenues came from their broadcasting deal with the Globo TV network. About a quarter came from tickets and membership subscriptions—all major clubs in Brazil, as elsewhere in South America, are member-owned social clubs, often offering other sporting activities and social facilities as well. Just 15 percent came from commercial revenue sources such as sponsorship and merchandising. Much of the rest, between 20 and 40 percent of Brazilian clubs’ income in the last five years, has come from selling players, especially to Europe.

And Brazil is the richest league in South America… Reliable financial details for clubs in other leagues are scarce, but a couple of examples help to illustrate the gaps with Europe. In late 2011, Boca Juniors and River Plate, the best-supported clubs in Argentina, both signed sponsorship contracts with BBVA Francés, worth $4.5 million and $3.5 million a year respectively. Compare this with the $30 million that Liverpool claims to earn annually from Standard Chartered Bank, which has extensive interests in Asia, or Manchester United from AON, a U.S. insurance broker. In Chile, the 21 teams in the top division together generated total revenues of only $40 million in 2007. The leading Chilean club, Colo-Colo, currently earns roughly half its income from player sales. Throughout South America clubs have to operate with much lower revenues than in Western Europe. The result is that they have to transfer their best footballers to Europe, often fail to pay the players that remain, and still incur increasing debts. Why have South American clubs failed to keep pace?

Matchday income is poor, due to lower ticket prices and declining attendances. In the case of Estudiantes, a leading Argentine club, a monthly subscription of $9 buys entry to all home matches, while the normal entrance ticket costs $12. Moreover, in contrast to the well-filled, comfortable stadiums in England or Germany, clubs in South America only ever fill their grounds for the big matches against local rivals. A report on the Brazilian Campeonato for 2011 suggests that average attendances amounted to just under 15,000, down 20 percent since 2007, and average gross revenues 300,000 reais a match ($180,000), compared with the $750,000 that a mid-table English Premier League club like Everton generates, let alone the $4 million that Arsenal, with a large new stadium in north London, obtains from each home match. Ticket prices obviously have to reflect local incomes and demand for seats. However, football has to compete with many other leisure activities, and attendance has suffered too from a growth in spectator violence. Starting in Argentina in the 1950s and 1960s, groups of noisy and often violent young men, barras bravas, have come to dominate soccer grounds, often fighting amongst themselves for prestige and spoils. In the 1990s, especially, similar barras also began to grow in Brazil, Peru, and Chile. Going to a match in a country like Colombia can be reminiscent of the worst days of soccer hooliganism in England in the 1980s, not just in terms of the threatening atmosphere outside the ground, but also the body searches and other barriers the fan has to cross in order to gain admission. The outcome is to deter many, especially families, from attending, as well as increasing the security costs that clubs have to meet.

Media income has also suffered. The armchair fan in South America who has access to cable television or, now, the Internet, can watch a bewildering variety of soccer, especially at weekends when matches from all the major European leagues are transmitted, or during the week when many prefer to watch their favorite players representing teams like Barcelona or Inter-Milan in the UEFA Champions League rather than South American competitions such as the Copa Libertadores. The accident of geography and time zones does not help: European matches are shown during the day or early evening in South America while South American matches transmitted to Europe would fall in the late evening or the middle of the night. Attempts to televise delayed highlights of the Argentine or Brazilian leagues in Europe have generally failed, much to the chagrin of aficionados of South American football. Problems also arise from the dominance of particular television networks, often part of larger business groups, which reduces the value of media rights for domestic competitions. Between 2009 and 2011, TV Globo, which dominates programming in Brazil, paid only $250 million a season for the rights for the Brazilian league. Furthermore, Globo places much more value on the advertising generated by its world-famous telenovelas than on soccer, with the result that midweek matches kick off after 10 p.m. when the telenovelas finish, depressing both attendances and TV audiences.

Poor television audiences for domestic soccer, especially when it is confined to Pay-TV, also have an impact on sponsorship income, because the potential partners for clubs or sponsors for competitions gain much less exposure. International firms may also be deterred from backing a sport marked by violence and corruption, though this is clearly not true of some of the banks and oil companies, as well as Pepsi and Coke. As noted already, the clubs’ sponsorship revenues are only a fraction of the levels seen in Western European markets. Other forms of commercial income, such as merchandising, also suffer from weak legal protection of brands and trademarks. How many people are going to buy a new official team shirt at $25 or more when pirated merchandise is available at a fraction of the price?

This all makes for poverty-stricken clubs and discontented soccer players, who are frequently left unpaid for months. In Argentina, it was claimed in 2009 that clubs in the top division owed players $8 million in unpaid salaries. In Peru, in January 2012, the debt to players reached almost $4 million. FIFPRO, the international professional soccer players’ union, reported similar problems in Colombia, where nine of the eighteen clubs in the top division had failed to pay players, while in Bolivia players refused to turn out for the national team until their clubs paid them. Brazilian soccer players have hundreds of cases pending against their employers in the labor courts. In a country where the legal system is notoriously slow, this offers impecunious clubs one way to delay payments they cannot afford. For good players, on the other hand, the prospects in Europe seem ever more attractive.

Financial difficulties also lead to clubs incurring large debts to the state for unpaid taxes and social security. The Argentine government claimed in August 2009 that the clubs owed $80 million in unpaid taxes. In Brazil the Lula government established a new soccer lottery, Timemania, in 2007, in an attempt to recoup some of the tax payments due from the clubs, an initiative that has so far failed to generate anything like the revenues anticipated. Amir Samoggi’s report on Brazilian club finances in 2010 estimated that the debts of the leading 25 teams totalled $2.1 billion, 40 percent of which was owed by four clubs in Rio de Janeiro, where reform of club management has advanced more slowly than in São Paulo or Rio Grande do Sul.

Poor management, in a continent whose three representatives on the FIFA Executive Committee have all faced serious allegations of corruption, is rife. In part this is due to the fact that most professional teams still legally belong to social clubs, run by their members in their spare time and with an eye always to the next election for club officials in a year or so’s time. This often makes for questionable alliances between club directors and leaders of the barras bravas, on whom they depend for support (and sometimes intimidation of opponents). It also helps to stimulate both an ‘arms race mentality’, where directors always feel pressured to spend more than their rivals, and poor and amateurish decision-making.

Yet perhaps there are signs of hope. The appreciation of the real and economic growth are leading some Brazilian soccer players to return home, improving the quality of the Campeonato. Chilean clubs have recovered their media rights and generate much more income by controlling their own television channel. Some clubs have made serious attempts to understand their fans and modernize their businesses. Boca Juniors is a rare example of an international brand originating in Argentina. Other clubs, like Santos or Internacional-RS, have realized that there is commercial potential in a high-quality youth system that develops players for the international market. For all said and done, whatever the problems with the business, South American football still produces some of the most skillful and iconic footballers in the world.

Spring 2012Volume XI, Number 3

Rory Miller’s professional career took an abrupt turn in 1997 when he was asked to become the founding program director of Liverpool University’s MBA specializing in Football Industries. Since then he has pursued research on football finance and the football business in Britain and Latin America, co-editing Football in the Americas (London: Institute for the Study of the Americas, 2007) with his colleague, Liz Crolley. At the same time he has continued to do research on Latin American business history, publishing Empresas británicas, economía y política en el Perú, 1850-1934 (Lima: Instituto de Estudios Peruanos, 2011) and jointly editing the Journal of Latin American Studies for Cambridge University Press. 

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