6.08.2012

Glory Glory Fans United? Part 2 of 2

Though as a fan of many sports, not least among them football, I appreciate Margalit’s analysis and conclusions, as a pragmatist and an amateur economist, I cannot ultimately agree with them. I put forward four main reasons for this; three based on examples, and the final based upon economic theory.

The first is simply that one of his case studies actually provides an example of a wildly successful club whose fandom is likely very happy with its results over the past few years, rendering Margalit’s initial assumptions invalid. Secondly, there are practical examples of clubs that have attempted to integrate fans into ownership and management that have failed extraordinarily. Third, there are examples where fans have shown that their voice can be heard by ownership short of an ownership stake, invalidating the conclusion that voice is not possible short of a property interest where loyalty is prevalent. Finally, the economics of modern football are such that highly capitalized owners are almost necessary in order to have success on the pitch, and the type of personality that often accompanies such deep pockets does not often suffer the type of influence Margalit advocates for.

However, and probably uniquely for a critique, I debunk these arguments myself. Unfortunately, I still conclude that Margalit’s excellent ideas are unfeasible. This is because the structure of the modern game itself makes universal adoption of them essentially impossible.

Allow me to begin with Margalit’s main representative of the problems inherent in modern football; Manchester United F.C. As Man United is a globally recognizable club, The Red Devils were a savvy choice to represent some of the problems in modern football. After all, there was uproar from the diehard fans and shareholders of the team when American Malcolm Glazer purchased the team in 2005. However, the facts show that since that time, the club has won 3 Premier League Titles, 2 League Cups and the Champions League among several other lesser trophies. Maybe current ownerships structures aren't so bad after all?

This on-the-pitch success may be masking issues though, as one of the truer maxims I have come across is that ‘winning cures everything,’ leading to its normally vocal fans giving the ownership some slack (hopefully not to hang themselves with) while the trophies continue to pile up in the Theatre of Dreams. Notably, despite its recent on the pitch success, the club is saddled with a tremendous amount of debt (as is Liverpool, another club with American owners, and whose anthem provides the titular namesake of Margalit's article), was forced to sell one of the most popular, widely recognizable and marketable players in the world over the summer (Cristiano Ronaldo, incidentally to one of Margalit’s examples of good ownership structure in Real Madrid), and is perhaps available as a contrary example purely because of its extraordinary pedigree and recent success.

Therefore, let’s put aside ManU as an example of why Margalit’s suggestions might not be necessary, at least because the club’s debt may yet prove to be an issue going forward. Additionally, it is almost certain that a future lack of success would cause fans to become more vocal, as they have at Liverpool, a club with as glittering a pedigree as Manchester, but similar debt problems which are unfortunately unaccompanied by recent English or European success. As even the special example of Manchester United fails to prove that current ownership structures are desirable, let’s assume arguendo that Margalit’s suggestions are therefore necessary.

The next step in critiquing his article would be to show that his suggestions are not possible. First, I would point to a practical example of a creative ownership structure failing rapidly and epically. This is provided by a lesser English club, Ebbsfleet United. The until recently named Gravesend & Northfleet gained international recognition over the past few years with a novel idea; give ownership, and also operational input to the fans, via an internet takeover. After initially gaining enough online pledges to make the idea feasible, money was collected and a majority stake was acquired. After some initial success, the club has fallen on hard times, sold most of its players, and may need to go into receivership. [i] [ii] [iii]

However, just as Man Utd could prove to be a current exception which in the future proves that Margalit’s ideas have validity, Ebbsfleet might be an exceptionally poor example of unique ownership structures which does little to disprove Margalit’s ideas. Among reasons that it provides a poor example are the fact that it was a wide array of internationally-based owners who put in the initial capital for the project, not the type of interested local, long-time fans Margalit identifies. Additionally, fans were likely given too much control of day to day decisions, with online voting providing a forum for fans to critique and influence the most minute of decisions made by the club’s management.

Also, the aforementioned forum for discussion was likely less than optimal, as geographically disparate owners tried to make major decisions using web-based chatrooms and polling. This, in retrospect (and perhaps at the time in the manager’s and player’s minds) smacks of reality T.V. club ownership, and not the solid, long term thought processes required for solid management of lemonade stand, never mind a football club.

Therefore, my initial critique of Margalit's ideas has gone the same way as my critique of the necessity for his ideas and the dodo. What then, of examples where voice is actually heard? I would point to Italy, where fan groups often have the ear of ownership due to their power and longstanding support. However, support for this notion can quickly evaporate when it is considered that these fan groups are often identified as nationalist, racist, and classist ultras who operate in an environment of corruption obvious to even casual observers of Italian football and are often granted their influence at the business end of a blade. [iv] [v] Examples can be also provided where voice is not heard, such as aforementioned Liverpool, where American owners saddled the club with debt in a leveraged buyout transaction, and whose fans have little say with ownership. Additionally, Margalit’s examples of clubs where fans do have a voice, Barcelona and Madrid, have been very successful historically and recently.

Therefore my third critique, that voice is unnecessary, is also debunked due to two main facts. First, examples of fan groups having a voice short of a property interest are often accompanied by unsavory side effects. Secondly, proven examples of fans being integrated into ownership often provide proven examples of successful clubs.

What then, of a final critique based upon purely economic analysis? This theory would point to clubs needing deep-pocketed owners to arrive and both save them from debt and provide fresh capital for player purchase and development. Here we have the recent example of Roman Abramovich purchasing Chelsea, or several even more recent examples of clubs being drowned in Middle Eastern petro-dollars with varying levels of success. In this analysis, it would be impossible to expect such individuals to part with fortunes if they did not have complete control over their clubs, and were forced to in some way share decision-making with anyone other than their hand-picked managers and executives. This is because the risk that they put in should be in some way manageable by them, via absolute control, as the safeguard that their potential return could be reflective of their investment.

However, many would point to this type of situation creating an untenable current environment in football where there are haves and have-nots and clubs are forced into impossible debt situations to keep up. Owners themselves have recently concluded that this type of situation is not desirable, and many have banded together to try and ensure that future owners cannot put limitless resources into their playthings. The result of this has been the recent restrictions approved by governing body of European football, UEFA. [vi]

Therefore, with new restrictions, it would appear at first blush that economic incentives alone are not a valid reason for not giving fans a voice. This is because there are only so many billionaires looking for playthings, and if they have limits on spending, there may be less financial risk. However, limits on spending are linked to revenues, meaning that some clubs, in order to keep up with the tremendous budgets of the lucky few with incredibly wealthy owners and large revenues, still need to put themselves in unsustainable economic positions to keep up, leading to an untenable situation for the game itself and an almost certainty of losses for most owners.

However, without some sort of financial reward, why would anyone want to invest heavily in a club? And if they did, why would they share control? So, even new rules put into place by UEFA do not ultimately solve the problem of giving fans a voice, as there will still be economic disincentives for the vast majority of owners for doing so. Therefore, my ultimate conclusion is not that Margalit’s reasoning is flawed, or that his ideas are anything less than brilliant, but perhaps that the current environment of the game itself makes his ideas impossible to integrate.

What would make them more feasible is a radical shift in the rules of club ownership and management; namely a salary cap. If clubs had salary caps similar to those imposed on teams in various American sports, they would be forced to be more fiscally responsible, the tremendous disparities between the biggest and the smallest clubs would be alleviated to an extent, and ultimately in the context of this essay, would allow fans to have a greater say in their clubs.

This is because the economic reasons to maintain dictatorial control over all decisions by the club would be alleviated due to less inherent risk that currently comes in the form of high debt and financial losses. Basically, if all clubs were financially viable entities with similar resources to work off of, there would be less short-term risk for owners who could then look more closely at the long term voice of the fans, resulting in a structure similar to Margalit’s economic/social partnership.

UEFA’s current proposal for clubs to live within their means is a start, but clubs have very different means, making the situation of smaller clubs unmanageable. There would also be issues to work through, as big clubs would be certain to fight such a proposal. Additionally, as Europe’s footballing community is inextricably linked via major continent-wide competitions, caps would need to be viewed in light of maintaining the balance of power throughout the whole region, not just nationally. This would, however, be easier with the common currency of many of the countries.

What of claims that successful clubs would be penalized by their successes? A salary cap would not stop spending on youth programs or infrastructure. And what about player salaries? Arguably all but those at the very top end of the spectrum would be just as well off. One need look no further than American baseball to see that the most fiscally successful clubs are still able to spend money on players and do well on the field, while still allowing so-called small-market clubs to make playoff appearances and even win championships. [vii]

A salary cap and its potential impact on spending in other places, such as youth programs, could even arguably have a positive impact on several other controversies in the footballing world, such as that over ‘home grown’ players, and the current issues over clubs buying youth players using less than savory means that are sometimes arguably, sometimes blatantly against the rules. Maybe this is all a pipe dream however; a salary cap seems to be as unfeasible as any of Margalit's ideas and is unlikely to be seen in Europe any time soon.

Ultimately I agree with Margalit on many things; however, it is not possible to separate good ideas from the realities of the modern game. Therefore, as a fan, I cannot see hope in his excellent ideas until many things change in the game, changes that may unfortunately only become possible after the game itself is harmed by financial collapse.


[i] http://www.telegraph.co.uk/sport/football/2299705/Ebbsfleet-United-A-team-of-my-own.html
[ii] http://www.ebbsfleetunited.co.uk/index.phpoption=com_content&view=article&id=90&Itemid=166
[iii] http://www.twohundredpercent.net/?p=1215
[iv] http://www.sudanvisiondaily.com/modules.php?name=News&file=article&sid=18132[v] http://www.guardian.co.uk/football/2005/apr/13/championsleague2
[vi] http://www.guardian.co.uk/football/2009/sep/15/uefa-platini-spending-football-clubs-europe
[vii] http://www.helium.com/items/501300-do-baseball-salaries-buy-championships?page=3 (though the author argues that money does buy championships, his statistics point to much more inclusion in the winner’s circle of baseball than, for example the English Premier League with its Big Four)

This article is a reprint; it was first posted in late 2009. Part 1 can be found here. Special thanks to Christine Wecker for her thoughts and notes on Ebbsfleet United.

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