x Abu Dhabi, UAESaturday 22 July 2017

The business model that propelled Germany to top of the Champions League

Business of sport: As if Germany's economic dominance of Europe was not enough, its football clubs now reign supreme and partly for the same reason - fiscal prudence.

Bayern Munich (red kit) beat Barcelona in the other semi-final to set up an all-German clash at London's Wembley Stadium next weekend. Lluis Gene / AFP
Bayern Munich (red kit) beat Barcelona in the other semi-final to set up an all-German clash at London's Wembley Stadium next weekend. Lluis Gene / AFP

As if Germany's economic dominance of Europe wasn't enough, its football clubs now reign supreme and partly for the same reason - fiscal prudence.

Bayern Munich and Borussia Dortmund, Germany's top two clubs, stunned the footballing world by dispatching the Spanish titans Barcelona and Real Madrid, respectively, to reach this weekend's Uefa Champions League final in London.

Pundits say their fast, attacking football and disciplined defending show Germany may be on the brink of unseating the World Cup champions Spain as the premier force in European football, not just at club level but at national level as well.

German clubs have invested heavily in their own talent over the past decade and have for the most part avoided running up the mountain of debt plaguing other clubs in Europe that have shelled out millions to hire international superstars.

"It's no coincidence that we are seeing such wonderful players as Thomas Müller, Mario Götze and Marco Reus in our teams because they have been nurtured from early on by our coaches," says Wolfgang Niersbach, the president of the German Football Association DFB, referring to young players from Bayern and Dortmund.

"Regarding our duel with Spain I dare to hope that we have at least shown that we can overtake them."

Its football is easy on the eye, but Germany's success must be galling for southern European nations mired in recession in the euro crisis and tired of Teutonic lecturing on the need for strict austerity.

A dose of humour may be the best way to cope. Some Brits have been consoling themselves with the notion that they'll at least, and at last, be seeing a German team defeated at Wembley.

But the semi-final performances of Bayern and Dortmund have made such an impression it has even got England thinking the unthinkable - that Germany may actually be a role model.

"Why can't we be more like Germany?" asked the centre-left British magazine New Statesman on its front cover recently. Germany's football clubs, the magazine argued, were like a microcosm of the structure of the German economy.

For one, they avoid taking financial risks. Neither Bayern nor Dortmund have debts. Twelve of the 18 clubs in the German league are profitable. They share revenues from TV broadcasting rights, unlike heavily-indebted Barcelona and Real Madrid, which negotiate their own rights.

And they have kept out wealthy tycoon investors with the so-called "50 +1 rule" for football clubs, which prohibits outsiders from gaining voting-right majorities.

That was long seen as an impediment to growth in the Bundesliga, which remains far behind England's Premier League in terms of total revenues. In the 2010/11 season, the Bundesliga earned total revenues of €1.75 billion (Dh8.27bn) from ticket sales, merchandising, TV revenues and advertising - player transfers not included. That put it a distant second behind the Premier League, which had the highest revenue of any football league in the world, at about €2.5bn.

Significantly, though, the 18 Bundesliga clubs made an aggregate profit of €52.5m in 2010/11 - compared with a Premier League loss of €425m.

"We're on a par now with the Spanish league, which has been living above its means for years," says Hans-Joachim Watzke, the managing director of Borussia Dortmund, Germany's only football club with a stock market listing.

Germany's spend-only-what-you-earn approach is being enshrined in European football rules, which will put the Bundesliga at an added advantage in the years to come because its clubs will not have to undergo as much change as their rivals.

European football's governing body, Uefa, is in the process of implementing its Financial Fairplay rules aimed at requiring clubs in Uefa tournaments to break even and prohibiting wealthy owners from offsetting club losses through cash injections. It wants to stop the inflation of player wages and transfer fees that have plunged half of European clubs into the red. Spain's Primera Division, or La Liga, alone is weighed down by some €3.5bn of debt.

So-called "financial doping" fuelled by debt or huge cash injections by rich owners has got scores of European clubs into trouble. They have to borrow to keep up with the competition by bidding for top players so they have a chance of winning lucrative titles such as the Champions League. But there can only be one winner - and all the others have to find ways to cover their costs.

"Overall, German football is an example for the whole of Europe," says Regis Dupont, a football expert for the French sports newspaper L'Equipe. "That's mainly due to the model of the Bundesliga: full stadiums; affordable tickets; and, of course, attractive football." German average ticket prices are less costly than those in Spain, Italy or England. The cheapest Bundesliga match day ticket averages €12 - in the Premier League it's €34. That helps to explain why average attendance at Bundesliga matches, at 42,000, is the highest of any football league in the world.

Few would argue that a decade ago German football lacked spark and the number of its world-class players could be counted on the fingers of a mutilated hand - goalkeeper Oliver Kahn and midfielder Michael Ballack, to be precise. Its national team was boring but reliable and above all, it seemed, infernally lucky in international tournaments.

But the 2000 European Championship, when Germany was knocked out in the first round after a 3-0 defeat by Portugal, was a wake-up call for the football-crazy nation.

Since 2002, the clubs have invested more than €600m in sports academies that have produced a wealth of young stars of today such as Dortmund's Mario Götze and Marco Reus or Bayern's Thomas Müller, or Mesut Özil, the German-born son of Turkish immigrants who now plays for Real Madrid.

They were talent-spotted and trained from a young age, sometimes training with the club's professional players from as young as 16.

That isn't to say the Bundesliga is problem-free. Bayern and Dortmund utterly dominate the domestic league. The two together account for a third of total Bundesliga revenues. Other German clubs such as Schalke 04, Hamburger SV, VfL Wolfsburg or Bayer Leverkusen tend to be also-rans in European tournaments when they manage to qualify.

"The gap in the Bundesliga is enormous," says Helmut Hack, the president of bottom-of-the league club Greuther Fürth, whose total player budget amounts to a paltry €12m - compared with Bayern, which pays its players a total of €166m, per year. "It's extremely difficult to keep up."

Bayern was so far ahead of the competition this year it won the league four weeks before the end of the season - that doesn't exactly make for a nail-biting finish.

Paul Breitner, a former Bayern Munich and German national team player, recently warned against overhyping Germany's dominance. "It wasn't the Bundesliga but only two teams from the Bundesliga that have done well in Europe this year," he said.

Two teams do not necessarily make a summer. Bayern Munich has been trying to keep the lid on a tax evasion scandal surrounding its president Uli Hoeness, a former player and a deft entrepreneur whose ambition and negotiating skills in the past three decades have made the club what it is today. Mr Hoeness may have to step down eventually- and Bayern would find him extremely difficult to replace.

Meanwhile, Dortmund's international success, stunning though it is, may prove short-lived. It's about to lose two of its best players - Mario Götze to Bayern and Robert Lewandowski, who scored all four goals against Real Madrid in the first leg of the Champions League semi-final, who is expected to follow him.

Huge sums are at stake in the Champions League. Bayern alone has already earned some €60m in prize money, sponsorship income and ticket sales from this season. The final figure will be higher because additional monies will be distributed after the tournament.

Whoever wins, it will be an enormous boost in global recognition, especially for Dortmund, which is less well known internationally than its rival. More sponsorship deals and merchandising income will beckon.

German clubs have some way to go to catch up. English clubs, for example, have a far stronger global brand and bigger international fan base, which makes it easier for them to attract investors worldwide.

"Asian businesspeople prefer to put their money in clubs like West Bromwich or Wigan Athletic because they're still better known in China or India than most German clubs," says Philipp Grothe, head of Kentaro, an agency that negotiates sponsorship and broadcasting deals for football clubs. The Premier League, he says, is a "cash machine". Its income from foreign broadcasting rights alone amounts to some €560m - compared with €72m for the Bundesliga.

 

business@thenational.ae