German Soccer Not on the Ball Financially
June 28, 2005
The study by global auditor Ernst & Young, which surveyed managers of both the clubs in the Bundesliga as well as the second division soccer league in Germany, predicted that both would face a rosier economic future over the next few years thanks to rising revenues and sinking costs.
Presented in Frankfurt on Monday, the survey found that club managers rated the current financial situation much more positively than last year. Two-thirds of those polled expected a better fiscal result for the 2004/2005 season and 53 percent said they were counting on soaring revenues in the coming season. Most of the hopes are pinned on sponsorship deals: 64 percent said they expected incomes to rise in that area.
TV rights hampering earnings
At the same time, the survey singled out television broadcast rights for putting a brake on otherwise much higher dividends for Germany's top soccer clubs.
The rather meager revenues from television rights as compared with other European top-flight leagues, could in future seriously endanger the sports quality of the Bundesliga, the study warned, adding that it could turn the German top league into a financial straggler on an international level.
The study's pessimism is lent credence by estimates that cash flows from television rights in the coming season will bring the 36 Bundesliga clubs a total of around 195 million euros ($237.086 million). In comparison, Britain's Premier League receives over 710 million euros, the Italian and French leagues 550 million euros each.
A break down of those figures by a further estimation show that the Italian top soccer league champion can count on 111 million euros from its national TV broadcast deals in the next season, while the German champ will have to contend with a mere 16 million euros.
Fans must begin paying to watch
The main reason for the relatively low dividends from television broadcast rights is the low penetration of pay-TV in Germany.
The possibility of seeing Bundesliga highlights on Saturday evenings on the hugely popular Sportschau program on free public service broadcaster ARD has drastically reduced the attractiveness of Premiere, the only pay-TV channel in Germany, the study said.
"At the same time significant revenue hikes can only be possible via pay-TV," said Arnd Hovemann of Ernst & Young. "The German television viewers have to change their viewing habits," he said.
He added that the average German TV viewer still had a paradisiacal situation when it came to program offerings and speedy match coverage, referring to the Sportschau on free-TV. Hovemann however said that paradise would have to end and fans would have to pay to watch, stressing that they would be compensated for it by increased quality in the Bundesliga.
That stance was echoed by Karl-Heinz Rummenigge, a former national player and current executive chairman of Bayern Munich, who lashed out last month at the ARD's "it's-cool-to-be-stingy" price for snapping up broadcasting rights for the Bundesliga last year and the widespread popularity of its Sportschau program in Germany.
In an interview with newspaper Süddeutsche Zeitung, Rummenigge admitted that the weekly Sportschau served its purpose well and was good and serious in its reporting, but added that the ARD had to ready to dig much deeper into its pockets if the Bundesliga was to remain competitive and retain top-notch players.
"With this (financial) game that we're playing here, television is undoubtedly an important pillar," Rummenige said. "It's always nice to say that the fan wants to see his Sportschau at 8.15 p.m. But then somebody has to tell me how we're going to finance this place here."
The Bayern boss added that boosting pay-TV was of utmost importance.
"The Bundesliga has to be interested in strengthening Georg Kofler's (head of Premiere) pay-TV," Rummenige said. "Premiere currently has around 3.25 million subscribers -- that's a positive trend but it's still far removed from the seven million that BSkyB has in England."
More business savvy needed
However, the soccer researchers are clear that even if the television deal for the 2006/2007 season significantly increased revenues, the earnings of top German clubs would still be nowhere close to their European counterparts. That's because of skewed revenue distribution rules in Germany among the soccer clubs which are not in direct proportion to a club's performance on the field.
"The Bundesliga has to decide whether it wants to cling to the principle of solidarity or whether it wants to retains financial competition among the top German club on a European level by changing current distribution rules," Hovemann said. "Both aren't possible."
The study also advises the top clubs to roll back costs in the short term, particularly on personnel and player transfers. Much like before, most clubs are outfitted with too little personal capital, the study said, adding that many still boast intangible assets such as players with high market value and club brands.
Most clubs in Germany are also moving away from traditional bank loans and looking at alternative ways to finance themselves, according to the study.