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Sandalio Gómez López-Egea, Professor, IESE, University of Navarra

The virtuous circle

Sun, 06 Jun 2010 09:27:42 +0000 Published in La Vanguardia (Barcelona)

Sport in general and soccer in particular have reached a spectacular development in recent decades, both in terms of professionalization and commercialization. The social, economic and media impact that soccer has acquired in Europe is of a dimension that has far exceeded any expectations. In Spain, it is estimated that soccer contributes 8,000 million, which represents 1.7% of the GDP and 2.5% of the service sector. Among the 20 most important clubs in Europe, there are three Spanish clubs: Madrid and Barcelona, which occupy the first places and have a turnover of 800 million euros between them, and the third is Valencia, although it appears at a considerable distance. Together, these twenty top European clubs have a turnover of a not inconsiderable 3,820.4 million euros per season. UEFA's annual budget will exceed 1 billion next season. These data speak for themselves that soccer is a business that directly and indirectly moves an increasing amount of money and is therefore worthy of study and in-depth analysis to understand the causes that have made it possible.

On the other hand, as a more recent example, of the ten most watched programs in March 2010, three were soccer matches: a France-Spain friendly match (8,262,000 viewers and a 40.70% audience share); a Real Madrid-Sevilla La Liga match (5,055,000 and 2.5%) and a Sevilla-CSKA Moscow match (4,010,000 and 26.8%). The UEFA Champions League final alone generated an economic impact of 267 million in Moscow in 2008; 310 million in Rome in 2009 (which also reached the highest level of audience in the world for a sporting spectacle) and 351 million in Madrid in 2010.

Sport generates a virtuous circle around it in which cities, countries, fans and supporters, companies, clubs and athletes are all immersed... from which everyone benefits. The social and economic capital generated by sport in general and soccer in particular is particularly evident in the celebration of major sporting events, such as the Champions League, the European championships of national teams and, above all, the World Championships, such as the one that will begin in South Africa in a few days' time.

The main beneficiary is the country hosting the international event, which for a month becomes the center of attention of the whole world. It will be visited by millions of tourists who will stay for several weeks, by thousands of journalists from all over the world writing daily chronicles and millions of TV viewers who will follow with interest the development of the competition. Sponsorships, advertising, marketing will be deployed with force in a unique moment that allows them to make their image, their products, their brand known to the whole world in a very short time. The economic amount that will be generated through this special value chain during a month and a half will reach figures that were unthinkable only twenty years ago.

Up to here the data aggregate objectives that through the world of soccer are being achieved. However, when one descends to the level of the clubs, which constitute the base of this sporting spectacle, on which the immense structure that we have just described is based, a major surprise is produced. It is difficult to find a club in Spain and in Europe that has a comfortable economic status . A good issue of them are in very complicated situations, some are in insolvency proceedings and others are dangerously close to it. Is it that, perhaps, they do not know how to effectively manage the virtuous circle that soccer puts in their hands? Is it that perhaps a soccer club, in spite of the money it generates, ends up being a business, yes, but totally ruinous? These are important questions that we should answer to know the keys that make this reality possible.

There is a continuous tension between achieving sporting success, which is the main goal of a sports club, and maintaining a balance between income and expenses. National and international bodies are strongly advocating the need to control this balance so that clubs do not become indebted beyond their real possibilities. The passion of the fans, the media pressure and the prominence of their managers lead to a lack of economic reflection.

It is necessary to rationalize decisions and give new impetus to the process of professionalization of all levels of the soccer world, especially in the governing bodies, where the most important strategic decisions are made, so that the goose that lays the golden eggs is not killed and is cared for in order to effectively take advantage of all the potential it has in its hands.