Failures of the Free Market in Football: Why the Bundesliga puts the Premier League to shame

By Eric Beard

I recently came across a great piece in the Guardian by Jamie Jackson focusing on the reasons why the Bundesliga is superior to the English Premier League. The sub-headline of the piece is “With cheap ticket prices and sound financial management, the Bundesliga is the antithesis of the Premier League.” For me, this begs the question of whether or not the Premier League is in decline because of all the financial troubles its clubs are facing.

The Premier League, for me, is the most competitive and most exciting league in the world to watch, as every team in every match is fighting for something. However, I completely agree with Jackson on many points. For example, Jackson writes:

In Germany the fan is king. The Bundesliga has the lowest ticket prices and the highest average attendance of Europe’s five major leagues. At Borussia Dortmund their giant stand holds 26,000 and costs little more than £10 for admission. Clubs limit the number of season tickets to ensure everyone has a chance to see the games, and the away team has the right to 10% of the available capacity. Match tickets double as free rail passes with supporters travelling in a relaxed atmosphere in which they can sing, drink beer to wash down their sausages, and are generally treated as desirables: a philosophy English fans can only dream of.

With Manchester United and Liverpool struggling financially, and clubs like Chelsea and Manchester City set to charge ridiculously high ticket prices next season, you have to wonder how making a ticket to Stamford Bridge £10 instead of £60 would change the state of the game. I believe that clubs could only profit by following the German model of making the supporter invaluable.

“The Bundesliga as a brand, a competition, is in good shape. We have a very, very interesting competition, a stable and sustainable business model that relies on three revenue sources,” the Bundesliga chief executive, Christian Seifert, tells Observer Sport. 

The incredibly successful trio of comprising match-day revenue (€424m), sponsorship receipts (€573m) and broadcast income (€594m) is the main contributor to the Bundesliga’s €1.7bn turnover. Now I know 1.7 million euros is an extremely large amount of money, but the revenue the Premier League makes puts that number to shame. The Premier League is the world’s most lucrative football league, with combined club revenues of £1.93 billion ($3.15bn) in 2007–08, and that number has only grown since. So why are Premier League clubs failing to make a profit?

One word: overheads. Competition is king in England, with each club constantly challenging the others to keep up with him. That means when Arsenal builds a new 60,000 seat stadium, Tottenham want to keep up with their rivals and spend hundreds of millions of pounds on a new stadium despite having a perfectly good White Hart Lane. If Manchester City offers David Villa £140,000-a-week, then the likes of Chelsea and Manchester United feel that they must do the same to stay competitive. So essentially these clubs would be making a profit if they weren’t being tempted by their competition. Of course, this is a double-standard. To stay in the Premier League it has become imperative to spend big money on big players, but in doing so these clubs are truly forcing one another into financial ruin.

Now this creates an astounding product on the pitch, as the best players with the biggest contracts are now residing in England facing each other a weekly basis. However, this model is not sustainable. At all.

Now I have taken my fair share of economics, and the current situation in the Premier League raises the age-old question of whether faith should be placed in the free market, which the current set-up of the Premier League operates according to, or regulation, that is, something like a league-regulated salary cap. Free market analysts will say that everything will sort itself out eventually. The problem is that clubs, and even the Premier League as a whole, could very well collapse before things can get better. But at that point clubs might be in such poor financial terms that they are not able to continue to exist; the recovery from such massive debt could prove impossible for clubs.

Of the Bundesliga’s stabilizing regulations, the recent history of English football suggests it might have benefited most from the 50+1 rule. This rule states that members of a club must retain at least 51% ownership, so preventing any single entity taking control. Portsmouth are the clear example of how a new outsider might potentially ruin a club – their administrator is currently searching for their fifth owner of this season – and the Bundesliga recently reiterated the commitment to the rule following a challenge from Hannover 96.

There are exceptions to the 50+1 rule, but these exceptions appear to be well-founded in common sense. Seifert again: “Bayer Leverkusen and Wolfsburg [whom Fulham knocked out of the Europa Cup on Thursday] are two. If a company is supporting football in a club for more than 20 years then it can acquire the majority. The idea is that a company has by then proved to fans and the league that they take their engagement in the Bundesliga seriously, that it’s not just a fancy toy or part-time cash injection that [could] change from one day to another.”

We all like to go ahead and create star-studded sides in Football Manager and FIFA 10, but even in these games you realize that a club cannot make money with a team of Ronaldos and Lampards. Germany seems to know exactly what it is doing, and I think its fair to say that the Bundesliga is the future of football. Or at least I sure hope it is because the alternative future of football is rather bleak.

What are your thoughts on the different approaches to financing football?