Imagine that you are a tractor factory in communist Hungary. Each year the state gives you a budget. But if at the end of the year you’ve overspent the budget and haven’t made any profits, the state just gives you a bit more money to make up the difference. In communism, bad companies were propped up forever. In other words, the ‘budget constraint’ on communist firms was soft. If they wanted to overspend their budgets, they could. The obvious consequence: unprofitable overspending became rife.
As scholars such as Wladimir Andreff and Rasmus Storm have noted, Kornai’s ‘soft-budget constraint’ applies beautifully to football clubs. Like tractor factories in communism, clubs lose money because they can. They have no need to be competent. The professional investors who briefly bought club shares in the 1990s got out as soon as they discovered this.
Luckily, as we’ve seen, society can keep unprofitable football clubs going fairly cheaply. The total revenues of European professional clubs for the 2014–2015 season were €19.6 billion (about £15 billion), according to the business advisory firm Deloitte. For comparison: over about the same period, the struggling supermarket chain Sainsbury had annual revenues of £23.8 billion. The two-bit losses of football clubs hardly matter when set beside the enormous love they command. These tiny businesses are great enduring brands. Creditors dare not push them under. No bank manager or tax collector wants to say, ‘The century-old local club is closing. I’m turning off the lights.’ Society swallows the losses and lets even a Bristol City soldier on. In a sense, these clubs are too small to fail.
Unlike most businesses, football clubs survive crises because some of their customers stick with them no matter how lousy the product. Calling this brand loyalty is not quite respectful enough of the sentiment involved. To quote Rogan Taylor, a Liverpool fan and Liverpool University professor, ‘Football is more than just a business. No one has their ashes scattered down the aisle at Tesco.’
CROOKED BUSINESS: FOOTBALL’S CORRUPTION AND THE HISTORY OF TECH
Remember what our friend said after trying to work with a revered English football institution: ‘I can do business with stupid people, and I can do business with crooks. But I can’t do business with stupid people who want to be crooks.’
Crookery has always been part of the football business. Powerful older men – working alone, or with friends – have traditionally run clubs and federations.
Their personal status encourages a sense of entitlement. The sums of money they handle have grown fast. They still mostly make decisions quickly and secretively. Their organizations have rarely had serious regulation. That creates opportunity.
Some types of corruption are eternal. However, each era also generates its own new crimes. The nature of football’s scams has changed over time as technology changes. Here’s a quick history of football crookery, and our views on why it has proved so hard to stamp out.
Before television discovered the game, football was a cash business. Every week, thousands of people would pay a few pennies each at the turnstiles, leaving the club with a large pile of cash on Saturday evening to be taken to the bank on Monday morning. This was a perfect opportunity for a money launderer. He might be a criminal who ran protection rackets, or perhaps a local business owner (a restaurateur, say) who didn’t like paying tax. All the launderer needed to do was deposit as much cash as he wanted into the football club’s account, claiming it was the gate receipts. If he was the chairman or some other club official with the power to sign cheques, he could then use the club’s account to pay himself or an associate a sum for services. Hey presto, the money was laundered. And since most football clubs were unprofitable, they didn’t pay much tax.
Clubs therefore attracted some unsavoury characters (not to mention egomaniacs) as well as the close attention of the tax authorities. Still, this was mostly small-time crookery – a few thousand pounds here or there. The club’s business was limited by the size of the stadium. The amount of cash deposited in the bank had to be credible.
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Then, in the 1970s, TV entered football. The device’s first big impact was on the finances of FIFA. The global authority had always been a tinpot outfit. It had little power over clubs, which were mostly regulated by national federations. All FIFA had was the World Cup, and for decades that only generated peanuts. In 1970, the year of possibly the greatest World Cup ever played, FIFA’s total declared income from all sources was just 1.5 million Swiss francs (then a little over £150,000).
But television transformed football. Between the early 1970s and 1990, the number of TV sets multiplied twenty times in Africa, ten times in Asia and four times in Latin America, writes David Goldblatt in his history of football, The Ball Is Round. The World Cup grew into arguably humanity’s biggest party, watched from the Cook Islands to Iceland.
And so the rights to screen and sponsor the World Cup became ever more valuable. But the tiny FIFA set-up of the 1970s lacked the nous to market them. When João Havelange became FIFA’s president in 1974, the organization’s Zurich headquarters employed just twelve staff members. Horst Dassler, whose father had founded the boots manufacturer Adidas, a much larger operation, bought many of the rights directly from FIFA. Dassler paid Havelange kickbacks, and the Brazilian flew suitcases of cash first-class between Rio and Zurich. Nobody troubled him. Few journalists covered sports administration. Switzerland continued to treat FIFA as the sort of little not-for-profit sports association that it used to be, almost like a village hunting club. No wonder dozens of other sports federations right up to the International Olympic Committee found Switzerland a pleasant place to do business. Many of them became as corrupt as FIFA, albeit with less money.
The beauty of FIFA’s business is that it’s a monopoly. There is only one World Cup (nobody has ever credibly attempted to start a rival event) and only one global football association. Moreover, FIFA generally recognizes only one national association per country, and so in a sense it’s a monopolistic association of monopolies. And a basic principle of economics says that monopoly creates profitability.
FIFA’s revenues from TV and sponsors rose from $308 million in the four-year cycle to 1998, to $5.7 billion in the four years to 2014. This happened not because FIFA was run by geniuses, but because in an interconnected world ever more people from Shanghai to San Francisco wanted to watch World Cups.
What to do with all this money? FIFA has few costs of business, beyond the first-class flights and traditionally secret salaries of its officials. To organize a World Cup, it needs to do little more than let the host lay on some football matches. The host pays for the stadiums; FIFA takes almost all the income from TV and sponsors. That’s what you call a business model.
So the FIFA president’s main challenge is to get himself re-elected. His main weapon: FIFA’s revenues.
In 1998, when Havelange retired, FIFA’s congress in Paris elected Joseph ‘Sepp’ Blatter as his successor. The president of each national football federation has one vote in congress, Montserrat in the Caribbean (population: 4,900) the same as China. Many presidents proved corruptible. David Yallop, in his 1999 book How They Stole the Game, recounts how the emir of Qatar (then a little-known country) flew $1 million in cash on a private jet to Paris, where twenty voters each seem to have been handed envelopes stuffed with dollars.
That election set the template for Blatter’s rule. He passed on chunks of TV money to national and continental football barons. This was typically veiled in the
