Home Economics Fan Ownership Of Football Clubs Might Not Be All That

Fan Ownership Of Football Clubs Might Not Be All That

Author

Comments

There’s the usual set of whingers off in the corner insisting that all football clubs should be fan owned. The argument being that it’s the fans – through their payment of ticket prices, buying the packages that allow them to see the games on TV – which produce the value of the club. Therefore they should own it.

Oddly, given the more usual desire for worker ownership, it never is the players that are touted as the rightful owners, but the fans. As if the Co-Op – which is a customer owned workers’ paradise – is the correct model, not John Lewis – a worker owned workers’ paradise.

A recent EU thingie shows that this might not be the very finest way to run an organisation:

Barcelona and Real Madrid face a potentially crippling backdated tax bill after the European Union today upheld a 2016 decision that both clubs have benefited from illegal state aid in Spain for the last 30 years.

The quashing of Barcelona’s appeal against the original decision, made by the European Commission, brought to an end a 12-year legal battle to change a 1990 Spanish law that gave Barcelona and Real Madrid, as well as Osasuna and Athletic Bilbao, the exclusive right to be member-owned.

The decision made by the EU’s court of justice to reject the appeal will now oblige the Kingdom of Spain to claw back taxes the four clubs were previously exempt from in their “not-for-profit” status. The law was passed in 1990, coming into effect in 1992, and obliged all other clubs outside those four to reconstitute as public limited companies – “sociedad anónima deportiva” in Spain.

The special status conferred favourable tax rates upon the four clubs…

So far this is just the obvious. The European Union – the Commission especially – has significant limits on what it’s allowed to get involved in, which parts of life it has power over. It also has certain tools, like here the monitoring of state aid. Therefore the tools available get used to extend the power into other areas of life. There is no EU competence over sport at all. But a way to exercise power over sport should be found – from the view of those who get to exercise power – and so one is.

On to our economic point though:

and left rivals at the mercy of unscrupulous private owners.

Well, how unscrupulous is that then?

The ECJ decision also asks major questions of the future ownership structure of Spain’s big two. The huge debts accumulated by the pair in the course of their transfer market arms race over the last 20 years – and now exacerbated by Covid-19 losses – have placed immense strain on finances. Both are labouring under debt in excess of €1 billion. Barcelona wlll hold presidential elections on Sunday with the club in crisis and former president Josep Maria Bartomeu arrested by Catalan police this week.

With no prospect of an owner bailout, the requirement from the European Commission on Spain to change the 1990 law raises the question as to whether both Barcelona and Real Madrid would ever take the opportunity to be reconstituted as PLCs. That would require all their hundreds of thousands of members to be bought out. As things stand, both clubs are notionally democracies but effectively controlled by the lenders who finance their huge debts.

It’s not obvious that fan ownership is better than the unscrupulous private owners, is it?

A brief foray into considering the incentives tells us why too. Each of those hundreds of thousands of fans gains from the team doing well, winning a trophy. That’s rather what being a fan means, gaining pleasure from such. No fan has the bear the costs of the debt required to be able to do that. Thus the pressure is to keep borrowing to gain the trophies. Leading to the billion in debt and no capital base to alleviate it.

What capitalism, in the sense of an owner, does is limit that. For the capitalist will be concerned with her portion of the ownership stake, that residual which is the equity in the club. There is therefore some sort of handbrake on excessive borrowing in chasing the next trophy.

We’ve even Nobel winning work that helps in explaining this. We can note that much smaller clubs can work well as fan owned organisations. There’s the second Wimbledon team – the one restarted after the move to Milton Keynes. And isn’t there a fan owned version of Manchester United out there? The point about these being that they’re small.

Small groups of owners can limit themselves. Human society simply works that way, as Elinor Ostrom gained her Nobel for researching. Up to limits of perhaps 2,000, maybe 3,000, people social pressure – Polyanian social exchange rather than market such if you like – can work and often does work. That’s just what hom sap does at times. But as Ostrom goes on to show this doesn’t work at larger scales.

Once we get past those sorts of sizes then the incentive to be a free rider increases to the point where it’s rational for all to be free riders. Which is exactly what we see with these large fan owned clubs. No one give a damn about the debt and at some point the organisation as a whole is going to crash into the buffers.

You know, Garrett Hardin was right?

SUPPORT US WITH A SUBSCRIPTION?

8 COMMENTS

  1. All of these good arguments could be applied to a democracy once the starting rate of tax rises to a level where the majority no longer pays tax.

  2. Doesn’t strike me as anything to do with fan ownership really. Crap management is crap management regardless of who owns the asset. The BBC sold off broadcasting house for a property development and the studios that are left on that site are not even available for them to use as tenants, as ITV now make programmes in them having closed down the South Bank centre. We owned BBC TV centre through the license fee.

  3. When I was young almost every League Club was owned by fans – not a single one of them was expected to make a profit and groups of local businessmen used to fund them. One of those groups of fans hired Matt Busby and funded his training school that turned out the likes of Duncan Edwards and Bobby Charlton.

    • I’ve got the feeling that this might be stretching the definition of “fan ownership” a wee bit too far.

      • ‘Ere we go, ‘ere we go, etc, etc.

        https://publications.parliament.uk/pa/cm201012/cmselect/cmcumeds/792/792i.pdf

        “Aston Villa Director William McGregor proposed the formation of a Football League (inaugural season 1888) which quickly contributed to the game’s growing popularity. This in turn led club owners quickly to invest in stadia to accommodate the additional supporters. They adopted a commercial limited company model to limit liability when investing in stadia. Club owners did not expect to reap financial reward from their involvement in football; indeed a Football Association (FA) rule (Rule 34) prevented this. This restricted payment of dividends to 5% of the nominal face value of shares and prohibited payment of directors.”

        • Thanks for the detail, which I had forgotten (although I recognise the 5% dividend limit now you mention it); it is worth emphasising that it was 5% of the nominal value of the shares excluding the share premium and not 5% of the purchase price.
          As to stretching the definition – I prefer to think that it fits the definition of “fan ownership” but the press have chosen to misuse that to mean “mass ownership”

          • Mass vs “Fan”; well, OK, yes. Fair enough. But I suppose that (currently) leaves you with Jack Walker at Blackburn, nearly 30 years ago by now. At a stretch, Mike Ashley at Newcastle (if you squint a bit, from a distance).

            Anyway The Economics of Football by Dobson & Gerrard (no relation) Chapter 2, gives;

            “Enlightened factory owners and employers, many of whom were graduates of the public school system, began to see the benefits for workplace morale and productivity of regular Saturday afternoon holidays, which created the opportunity for the development of organised forms of working-class leisure activity. New football clubs began to form throughout England, often at the instigation of local church leaders, during the late 1870s and 1880s.”

            Given the restriction on dividends, it’s interesting to speculate on the cashflows to and from clubs, and the likely transfer of equity ownership over the next 100 years or so.
            Page 39, in my copy.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

expunct

in British English
expunct (ɪkˈspʌŋkt)
VERB (transitive)
1. to delete or erase; blot out; obliterate
2. to wipe out or destroy

Support Us

Recent posts

The Bit That Robert Lighthizer Doesn’t Get

It's right here in the opening sentence of his piece in the New York Times: The Senate recently passed a bill intended to bolster America’s...

Brexit Brings Us Cheap Wine

There's a long way to go on this but this is indeed a start: The U.K. government said it will scrap a piece of planned...

Some At The Post Office Should Be Facing Significant Jail Time

Whether it's just a few or the many still remains to be worked out but there are definitely those at the Post Office who...

Another Beautiful Theory Destroyed By A Mere Fact

Apparently, so we're told, crime is soaring in the United States. But that's OK, we know the reason why. We even know what to...

Idiots – US Life Expectancy Hasn’t Fallen In The Slightest

It's important - actually, vital in both meanings here - to know what is being measured and how in order to understand what the...

Recent comments