The Post-Brexit Soccer Manifesto

A Quick Refresher on How We Got Here

I think young people everywhere were shocked by the Brexit vote. I described it to my dad as “a sad day,” (he didn’t see it that way) because it represented a willful departure from the politics of inclusion and cooperation. It seemed more a victory for fear-mongering, nativism and isolationism.

Of course, this may be a naïve assessment in your eyes, and maybe the UK is right to break from the EU. The Union itself is under threat in the wake of the recent sovereign debt crises (with Germany bailing everyone else out), so maybe backing away from a collaborative solution in favor of autonomy is the right thing to do.

Either way, Brexit, the rise of Trump on the right and Bernie Sanders’ “revolution” on the left are all unified by one primary factor: a referendum on the elites and their policies. These policies — championed for decades now — typically favor openness with respect to globalization (see the Trans Pacific Partnership as the most recent example), free capital movement, limited regulation, etc.

And for a while, it seemed like everything was working:

But ultimately, these policies culminated in the financial crisis, followed by the Great Recession. And with it came billions of dollars of wealth destruction, job losses, the squeezing of the masses…unemployment rates may have recovered, but economic stagnation (and in the UK, austerity) has been the norm ever since. People are frustrated, scared about their economic livelihoods and generally worried that their “way of life” is under assault.

There’s a generational shift at the heart of it all, driven by the internet’s/technology’s destruction of “old” industries, much like how industrialization and factories destroyed the old agriculture-based society. Typically younger, knowledge-based workers are comfortable with this dynamic, having come of age along with the internet. However, older skill-based workers in “old” industries are understandably angry that much of this new world order may not include them. This generational divergence is at the heart of the renewed economic populism (on both ends of the political spectrum).

Moreover, these trends look like they’ll continue for the foreseeable future. Boomers will keep retiring as Millennials hit the workforce and start wielding more purchasing power than Generation X. This shift in buying power necessitates the re-architecting of how products are developed, marketed and sold in favor of Millennials’ appetites and preferences, which itself implies the continued “digitization” of the economy in favor of these younger knowledge workers (the success of Dollar Shave Club is a notable example). This inherently excludes members of older generations, fueling the cycle of ideological divergence and antagonism.

One area though has been untouched by this divisiveness. It still serves as the chief uniting factor across generational, political, racial and religious lines. It has the power to grab our attention and cause collective ecstasy or anguish. Sports.

Live Sports: Let the Good Times Roll?

First and foremost, it’s important to understand that sports is a cornerstone of the media ecosystem. Leagues generate revenue by selling networks the right to broadcast games. In turn, these broadcasters look to profit by signing up subscribers or sell advertising. A locked-in subscriber base guarantees that advertisers can reach their target audience, since watching live sports guarantees a large, captive viewing experience.

While the traditional TV business model (think your network sitcoms) is under threat due to the emergence of digital streaming/cord cutting/cord “nevering,” live sports remains largely immune. It retains its immediacy in the way that serialized TV programs don’t; we can always stream House of Cards later, but how long can we be trusted to not look at our phones to check the score? If anything, live sports seems to be hitting its stride, with media companies new and old looking to get a piece of the action:

1. Recognizing its value as a platform to address real-time events, Twitter is striking deals to stream select games from multiple leagues, similar to how it showcased the Wimbledon action earlier this summer
2. Facebook and Amazon both reportedly bid on the NFL streaming deal that Twitter ultimately won. The former is currently experimenting with basketball.
3. ESPN is launching an ACC online network in an effort to get more paying subscribers for its core ESPN offerings
4. ESPN sold exclusive subscriptions for streaming the Cricket World Cup
5. Disney just bought a piece if BAM Tech (33%) — the digital streaming arm of Major League Baseball — valuing the company at $3.5 billion, with an option to buy a majority stake later on
6. The Big Ten increased the value of its TV rights package by 3x and still found willing bidders in ESPN, Fox and CBS
7. Amazon hired a new “head of sports” to explore how it can get further involved with digital streaming
8. The Premier League announced a TV rights deal worth +71% more than its previous deal
9. The NBA announced a nine year, $24 billion deal with ESPN and Turner, 3x the value of the prior deal

The internet liberates consumers from the traditional TV network schedule, except when it comes to sports (in which case media companies are trying to leverage the internet to make the viewing experience more attractive). This lies at the heart of the “gold rush” for sports rights broadcasting, and is also a primary factor in the active trading in sports franchises:

In short, live matters. And as TV ad revenues continue their inexorable decline, the remaining money funneling into the medium will be concentrated around live events, the one area that can guarantee captive audience viewing.

So, from a fan’s perspective, let the good times roll, right? We view these wealthy backers as long-term investors, leveraging the TV rights windfall to further invest in the “product.” We assume that their motives align with ours — that we all crave long term sustainability over near-term profit.

But the nature of capitalism is that owners are free to treat their property as they see fit. And in capitalism, you have good business owners, and bad business owners.

The Global Game Does Globalization Best

Contrary to the free buying and selling of other goods though, sports leagues are actually quite protectionist (and rightfully so). The NBA, NFL, MLB and NHL all operate as “business clubs” (rather than open marketplaces) where owners regularly compete on a sporting basis, but make decisions collectively on business/financial matters.

We saw this most recently in the Donald Sterling racism controversy, where other owners almost took it upon themselves to vote out another member of the club. The league is designed to protect the greater good, and the potential is always there to remove an owner if they “fail to fulfill” a “contractual obligation” in “such a way as to affect the [NBA] or its members adversely.” No one will stand in the way of an ownership group and its commercial interests, even if that person is another owner.

Interestingly, this protectionist bent only seems to apply to U.S. dominated sports, whereas soccer has much more closely mirrored the concepts of globalization. This makes sense though, given the history of each sport and their prevalence throughout the world. U.S. sports were traditionally just that — U.S. games bound to their domestic consumer’s interests and economic power. The internet upended this dynamic though, enabling the leagues to easily stream games internationally, or mount cost-effective global marketing campaigns. As a result, their quest for global expansion is still relatively nascent; holding a couple of regular season games in London and Mexico, or selling off streaming rights abroad, are merely just a testing of the waters. They pale in comparison to the plans of soccer owners.

On this front, soccer benefits from its century-old status as the global game. It’s much more comfortable with the concepts of globalization (the free market and expanding the reach of the product across the world) than U.S. domestic sports. The expansion markets are already established (i.e. resources don’t need to be extensively deployed to cultivate fandom), and the leagues are typically structured to take advantage of the ready-made opportunity.

This accommodating setup makes the sport much more attractive from an ownership perspective. Rather than lobbying for entry into a protectionist club, prospective owners can simply enter into negotiations directly with the existing owner, pass a “Fit and Proper Persons” test by the league (which is viewed as nothing more than a “virtual formality”) and issue a press release touting a “bold new era” upon consummation of the deal.

Therefore, from a league structure perspective, European soccer franchises more closely mirror businesses and competition in a capitalist society. This also affords new owners autonomy to operate the clubs as they see fit, whereas in U.S. leagues owners can be bound by the collective interests of their peers. This unregulated ability to operate the franchise — which adheres to the neoliberal economic principles underpinning globalization and free trade — may seem the “right” way to build a league. It’s a competitive business after all, and it’s all about survival of the fittest and the “creative destruction” of those that can’t keep up with the evolution of the game.

However, I would argue that sports franchises are totally different from normal businesses. They hold the economic and emotional interests of entire communities, and more closely mirror public utilities in their value to society, rather than individual assets that are only accountable to shareholders. In short, when it comes to sports, we are all shareholders in spirit, rather than passive observers. Franchises should be regulated as such, as is the case with collective action in U.S. leagues.

A collective approach to ownership/league management typically mitigates the mistakes made by bad owners and speculators. In global soccer though, there’s no place to hide for those out of their depth. Hence why some owners seem to get it right (in the linked case, I argue using hindsight of course) while others seem to drag down once proud clubs.

There’s a Storm Coming…

So, on the one hand we have the rich and powerful gobbling up community institutions in their search for more wealth, more power and more glory (and sometimes driving them into bankruptcy). On the other, we have the renewal of political populism and a societal backlash against the very thing that some of these new owners embody. But the two are still distinct trends. Why the disconnect?

One argument is that sport is largely immune to these sorts of considerations. It — like the movies — offers escapism, a source of entertainment to distract from our everyday lives. I agree that this partly explains it, and as a result we’ve only seen fan activism to relatively isolated events. When it’s your club that’s in jeopardy, then the escapist dream turns into a nightmare; you end up fighting to preserve your primal means of community-based entertainment.

The other argument is that people are actually happy with the status quo. That all the money flowing into the sport gives traditionally mid-tier, trophy-barren clubs a chance to finally compete. It also gives the elite clubs even more firepower to chase the biggest prizes in the game.

This to me is the more likely explanation. Club executives are happy to splash the cash on improving their squads with big-money signings. These continue putting butts in seats, but more importantly, buoys the marketability of the club in lucrative international markets (clubs are brands after all!). And so the money wheel keeps spinning. TV rights cash fills transfer coffers, big signings line agents’ pockets and improve the product on the pitch and we just can’t help but tune in to see the drama unfold. And on and on and on it goes, right?

It’s easy to declare that there are no immediate threats to this new dynamic. Despite the biggest financial crisis and recession since the Great Depression, ratings, rights deals and club values are all up, while the broader economy continues to play catch-up. Wealth creation in emerging markets boosts the supply side (hence the increasing number of Chinese ownership bids in particular) while the rise of social media bolsters the demand side (we feed the hype machine with every tweet and Facebook post).

For some reason though, I can’t seem to shake off this message:

We seem to be at the pinnacle of decadence in European soccer, where elite ownership consortia routinely swoop in with promises of making their new clubs “one of the greatest in the world,” largely driven by excessive initial investment on new players and a bold international marketing plan. This end goal of course is rarely able to come to fruition, as owners embark on efforts to either strip the club of its history (notice how the “successful” wealthy owners of Manchester City took the exact opposite approach by actually consulting with their fans), or instead just regularly lose patience with the project when it’s still in its infancy.

So, when will the storm arrive? When will the locals realize that they’ve been duped by this era of financially-driven excess? When will the sentiments regarding globalization and elites that plague politicians today affect the new elites taking over their beloved community institutions? Near-term, the excess looks set to continue, but I’ll consult my crystal ball and attempt to call where the game is heading.

Seeking a Guide for the End of an Era

Like I said, don’t expect it to happen any time soon. England is a flutter with the idea of Paul Pogba and Pep Guardiola on its shores, and money from the new TV rights deal is still burning a hole in everyone’s transfer wallets. We will all be enamored by the new normal of £30m transfers, the idea of mid-table clubs possessing blinding wealth, and the idea that all of this breeds a level of competition in the Premiership that’s simply beyond the scope of other leagues. But this house of cards has been building over a long time, and I think it’s we’ll inevitably see cracks show in the edifice.

Predictions are below. I will use these as a benchmark of my analysis going forward, and while likely some (I am optimistic only some) will be wrong, that will only serve to improve my understanding of the dynamics of this sport, and hopefully become a better analyst as time passes:

Prediction 1: Arsene Wenger will leave Arsenal at the end of the 2016–2017 season, without winning the title.

He will be beat by the mega spending at either Manchester City or Manchester United, and he will walk away at the end of the contract thinking that he is a reasonable man simply living in an unreasonable time. He will finally accept that his principles of moderation, discipline and team building (which served him so well in the first half of his career at Arsenal) no longer fit the current state of English game.

Arsenal fans will either openly rejoice or privately be relieved that they are moving into a new era with a coach more attuned with the current mega spending state of the game (my money is on Max Allegri after another Juventus title win and Champions League semi-final run). However, they will quickly realize that rather than be a team of principle, they will be just another big spending club in a big spending era. They will realize after the fact that what set them apart, what gave them their identity, has been traded in for the idea of spending your way to success.

The obvious pushback from Arsenal fans on this one will be “we don’t want Wenger to spend like crazy, we just want him to strengthen where needed in order to make a proper title push.” But honestly, you can justify any position for an upgrade in the current Arsenal squad (yes, even Petr Cech). So my real question to you is, how do you get there by not betraying the man’s principles?

Subsequently, the Premier League loses one of its biggest story lines (the man who fought back against the rise of the current status quo). The league becomes purely an arms race, increasingly out of touch with the local fan base.

Prediction 2: A large, historic club will teeter on the edge of bankruptcy (or outright go into administration).

When this much money is floating around, excess is inevitable. An owner will get ahead of themselves and sanction a huge transfer budget, assuming this will guarantee their top flight status. They will likely not structure relegation wage clauses in their players’ contracts, effectively keeping inflated fixed costs on the books. The owner will look to sell, but will be unable to find a buyer. This will trigger a fire sale of their best players at lower than expected transfer values, and the owner will be unable to rebuild the squad ahead of the new season.

Disenchantment with regular transfer bingeing increases, and the noises increase about “reform” in the game.

Prediction 3: The league will be forced to re-evaluate its Fit and Proper Persons test.

Right now, the money keeps flowing in and no one is really asking any questions. Prediction #2 may easily trigger #3, as supporter’s groups put more pressure on the league to tighten up its policies and safeguard the good of the domestic game.

An independent investigative committee should be established to review each ownership bid and their financial plans (like when a start-up puts together a pitch deck for VC funding). This committee should have little-to-no involvement from the Premier League itself (maybe a non-voting observer seat), as the League will be beholden to anyone with “bold plans” to expand the brand of the club in question.

I will chalk up this independent committee aspect as more of an aspiration rather than a prediction. There’s no guarantee that the League will willingly cede control over who can own a club

Prediction 4: The proposal to revamp the Football League will fail.

I wrote back in May why the new plan was basically a cleverly disguised turf battle in favor of the Premier League (apologies for lengthy quotation):

“Sacrificing the lower league midweek fixture looks like a cleverly described gambit to monopolize attention during the week (including the introduction of the Friday night fixture from next season), potentially ease Premier League clubs’ own fixture congestion via the FA Cup (by scrapping replays) and finally to avoid “problematic” fixture clash with UEFA competitions.”

And:

“This is the crux of the newly proposed league structure and fixture calendar: by pushing Football League matches out of the midweek and onto a strict Saturday/Sunday schedule (the time when the Premier League is already dominating football viewership and conversation!), the top flight can further dominate sporting attention during the work-week.”

Honestly, for a far more eloquent version of what I’m getting act, please read this piece in The Anfield Wrap, which discusses the related topic of letting Premier League B teams in either League 3 or the Football League Trophy.

Prediction 5: England will fail to seriously make an impact in the next two major tournaments (World Cup and Euros) despite a spotless qualifying campaign.

OK, get the snickering out of the way, I’m not trying to be cynical here. But there is something seriously wrong with the development of grassroots soccer in the country, and much of it has to do with the obvious concentration of wealth at the top and the stymying of local soccer. But the pushing of a new golden crop of talent into the latter half of their careers without any meaningful impact on the international stage will finally lead the FA to campaign for some reform of the top flight.

They will be backed by an entire nation of desperate fans, who will have likely just seen Germany lose to the resurgent, youth-driven Dutch in the Euro final at Wembley.

Prediction 6: The value of the next TV rights deal will be less than the value of the current TV rights deal.

We are at the peak right now, witnessing the culmination of years of marketing hype and globalization-enabled wealth creation. It’s only a matter of time before the domestic backlash starts, and the end result will be collectively hitting all the clubs where it hurts most — their wallets.