Never Mind the Goals, Focus on the Brand

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Like any other arena of global business, international soccer today is increasingly dominated by a handful of corporate titans located in the industrialized world. These are the best-capitalized clubs whose wealth allows them to fill their rosters with the best players from all over the world to keep them challenging for titles year after year, and carving them out a share of the "global" fan market (those outside their home cities) whose adulation means mega money from merchandizing. Scan news photographs from around the world, today, and you're as likely to see an Arsenal or Manchester United shirt at a Beijing college campus as at a demonstration of radical Shiites in Baghdad. And today, awareness of that global market outside of the traditional home-town audiences that fill the stands week in and week out has reached unprecedented levels.

The business model for the top-tier clubs, today, is to behave much as corporations do — attract investment by their ability to generate earnings, which means burnishing that ability by maintaining their "brand" through trading for the best players, and growing their market share with new products and new markets.

In terms of paying customers who'll fill seats in a stadium and buy paraphernalia, most of Europe is spoken for, with fans loyal to their chosen teams and unlikely to switch. Hence the sudden interest in massive untapped markets such as Asia and the United States. Tours of Asian countries and exhibition matches in the U.S. were routinely considered simply part of a team's warmup rituals for the tough season ahead. But Real Madrid's tour of China in the last preseason, showcasing their new pop idol David Beckham, was a reminder that the name of the game now is attracting fans in non-traditional sectors, which can deliver big bucks. Some commentators even suggest that there's a tendency among some clubs now to sign a promising teenager or rising star from China or Japan, in the hope of creating an icon with which to deepen local identification with their brand.

Marketing concerns also explain the reason a club like Real Madrid chooses David Beckham over the Brazilian midfielder Ronaldinho, a infinitely superior player. A Real official explained the decision thus: "(Ronaldinho)'s so ugly that he'd sink you as a brand. Between Ronaldinho and Beckham, I'd go for Beckham a hundred times. Just look how handsome Beckham is, the class he has, the image. The whole of Asia has fallen in love with us because of Beckham. Ronaldinho is too ugly." The Brazilian had the last laugh, of course. He signed for Real's arch-rivals, Barcelona, where his magic on the pitch almost single-handedly engineered the collapse of Real's season.

And although there are no honors or significant prizes at stake in their pre-season kickabout tour of the U.S. in which the likes of Liverpool, Manchester United, Chelsea and Glasgow Celtic will play some 11 matches on American soil, there is, nonetheless, a real contest at work of huge significance to the fortunes of all of the clubs: The battle to sell replica uniforms and other paraphernalia to a soccer fan market estimated to number around 8 million.

Last season's English Premiership, in which the top three clubs — Arsenal, Manchester United and Chelsea — finished more than 20 points clear of their nearest challengers confirmed a trend occurring throughout Europe: the concentration and centralization of soccer power in the hands of a small elite of superclubs. The clubs themselves have recognized the trend, by creating their own equivalent of the OPEC oil cartel — the G-14, which today consists of 18 clubs: From Spain, Real Madrid, Barcelona and Valencia; from Britain: Manchester United, Liverpool and Arsenal (and presumably Chelsea will soon demand to be number 19, since their infusion of Russian capital); from Italy Juventus, AC Milan and Inter Milan; from Germany, Bayern Munich, Borussia Dortmund and Bayer Leverkusen; from France, Marseille, Paris Saint-Germain and Lyon; from Holland, Ajax and PSV Eindhoven; and from Portugal, FC Porto.

Of these 19, only about six will ultimately rank as players in a truly global market, according to Real Madrid's strategists, and the battle is to become one of the six. Those who win out will be regular contenders not only for the top honors in the national leagues, but also for Europe's cross-continental Champion's League. And they will maintain the support of their fan base by maintaining rosters of global all-stars through multimillion dollar signings every year. Indeed, a defining characteristic of top tier teams such as Arsenal, Real Madrid, Juventus and AC Milan is that they maintain a roster of players that could conceivably come out on top in a match against any of the world's top national teams — Brazil, France or Germany — on any given day. Just as Microsoft wields more economic power than a number of national governments, so do the top tier clubs wield more football talent than many national federations.

But what of the scores of clubs outside of the big 18, on whose survival the very existence of domestic league soccer in Europe depends? For decades, the art of financial survival in smaller clubs involved astute playing of the transfer market. Through a good scouting program, these teams would identify unheralded youngsters in youth programs who could be turned into A-List professionals, and then nurture their talents. They could be good for a year or two helping the club to achieve a modicum of success, or at least stay in the top division of the domestic league, before the voracious appetite of the bigger clubs for new talent would invariably see them offer a sizable chunk of change to buy the player's contract. So, a player developed through the youth system of club such as Dutch legends Ajax — Andy Van Der Meyde, for example, is contracted for a minimal signing on fee as a teenager, and then, after a few years of success, Inter Milan comes in and buys him for $6 million — most of that profit for Ajax on their investment in the player, who has also helped them to considerable success before moving on to where the bigger money is. And, of course, the player himself also gains, because his new club has to convince him to sign a new contract with them, with a considerable increase in his salary.

This is the logic by which lesser clubs across Europe trawl Africa and Latin America for talent not yet noticed by the major franchises, bringing them to Europe not only to strengthen their own teams, but also to show off their talents to potential G-14 suitors to which their contracts can be sold at a huge profit.

Playing the transfer market became a lot more complicated for the clubs — and a lot more lucrative for the players and their agents, the proverbial "Mr. Ten Percent" — after a landmark ruling by the European Union's highest court in Brussels in the case of an unremarkable Belgian journeyman by name of Marc Bosman. Bosman challenged the previous transfer system that gave most control over player's destiny to the clubs who held their contracts, giving them a right of first refusal over the player's future even after a contract had expired. The Bosman ruling turned players into genuine free agents, who were allowed to move on to a new contract with a new club after the old one expired with no fee to be paid between clubs. Players could now simply make negotiating the best wage and playing deal the basis of their decision to move. And while that freed players from a system that had been close to a very comfortable and well-paid form of slavery, it wrought havoc with the traditional economics of the game.

Take the case of Van Der Meyde's former Ajax teammate, Clarence Seedorf, who also came through the youth system. He simply left the Dutch club for Italy's Sampdoria on a "Bosman" when his contract expired. It was the Italian club who cashed in, selling Seedorf to Real Madrid the following year for $8 million. And so good was Seedorf, however, that Real benefited not only from his skills that helped them to win the European Champion's league, but also from his appreciation in the transfer market: The Madrid club sold him to his current employer, Inter Milan (where he rejoined Van Der Meyde), at a cost of $24.35 million.

Ajax made $6 million offloading Van Der Meyde, but their investment in Seedorf produced little hard cash for them because they allowed his contract to run out. But Sampdoria made $8 million off selling him to Real, who made a further $16 million selling him to Inter. His departure from Ajax made clear the dangers of letting a contract run out — today, clubs will open talks with a valued player over a new contract two years before the current one expires. And if they can't agree to a new terms long before the current deal expires, they'll typically sell the player in good time to avoid getting Bosman-ed.

If the drive to maintain market share at the top compels teams to constantly be adding to their roster by buying the best players available, the practice plays havoc with their overheads. After all, the top-flight players at a club such as Real, particularly those bought from other major clubs, are earning up to $150,000 a week. And most clubs keep a first team roster of around 25 players. There are players earning millions of dollars a year simply for warming the substitutes bench at clubs such as Real or Manchester United.

That reality has opened up a creative business option for some lesser clubs to remain in the top flight of their own national leagues — the loan deal. That occurs when a club with too many stars on its books agrees to allow a player to join another club for a season, while hanging on to his contract (and therefore his value in the transfer market). The effect is not only to provide regular first team football to a top flight player who might not accept life in the reserve team, but also to lighten the wage load — the club making the loan agrees to pay the player's salary. Sometimes, loan deals can have unintended consequences: Last season, Real Madrid loaned star striker Fernando Morientes, surplus to requirements at Real, to the French club Monaco for the season. Morientes's goals powered Monaco to final of the Champion's League, downing his own club along the way!

The system has also allowed a club such as Middlesborough, from an economically depressed industrial city in England's smoggy northeast, to remain a credible force in the premiership by at various times taking such Real Madrid stars as Gaizka Mendieta and Njitap Geremi on loan.

But the loan system, and the nursery system by which clubs such as Ajax of Amsterdam and outfits such as Auxerre in France stay afloat by cultivating young talent developed from scratch testify to a growing global division of labor in the game. Clubs such as Manchester United and Real Madrid rarely cultivate their own players now; they typically buy the finished product for astronomical fees. And lesser clubs across the continent only survive by their ability to find and cultivate players they can't possibly hope to hold onto — a reality that demoralizes and diminishes their traditional (local) fan base.

But just as globalization accelerates the concentration of economic power in the hands of a small elite of corporations who swallow up the rest, so too is the dynamic in world soccer putting a breaking strain on many of the clubs that make up the also-rans of Europe's domestic leagues. The current total debt of Europe's professional soccer clubs is estimated to run to around $8 billion. Some clubs will get "lucky" and find deep-pocketed foreign investors. Russian oligarch Abramovich bought Chelsea, Thai prime minister Thaksin Shinawatra tried to buy Liverpool, and the latest reports suggest that the London club Crystal Palace, newly promoted to the Premiership, may be bought by Libyan leader Muammar Ghadafi. And the danger of collapse may even prompt government intervention to save certain clubs in European leagues where their collapse could be as politically damaging as lifting farm subsidies.

But the inexorable logic of the concentration of power at the top is the emergence of an elite trans-European super league, comprising the 18 members of the "G-14" as a closed shop. Currently, the Champion's League is really a prolonged knockout tournament for which teams qualify by their performance in domestic leagues. The logic of where the money is going, and the weakening of national federations relative to the power of the clubs given the free labor market for players — particularly when and if the clubs chose to function as a cartel — suggests that they may eventually decide to transcend domestic leagues altogether.