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Spanish football is about to collapse; warning sign for British clubs

By Tony Attwood

Whenever we debate the issue of Uefa’s Financial Fair Play regulations and the like, there are those who write in and say, “they can’t do it because it is against EU regulations,” while ignoring the fact that the EU has devised a distinct legal approach to applying the law to sporting activity – including of course football.

But of course it is true that football is not exempt from its economic duties such as paying tax, and football must show itself to be competitive within its special rules – otherwise the EU will act again, as it did so dramatically with Bosman.

In 2008 football did manage to resist an attempt by the EU to take on extra powers in relation to sport.

But as we have been saying here for four years, football across Europe is built on debt, and with the individual countries (particularly Spain and England) being unable or unwilling to face the issue of football debt the EU is asking for explanations – especially in relation to Spain.

Arguably Spain is in more of a hole than England in that the debt levels include vast amounts of unpaid tax.  In England that problem is reduced as the clubs are protected by the “football debt” agreement in which clubs going into administration pay football debts and then by and large forget the rest – including the tax that they owe to Revenue and Customs.  The EU might demand that the UK changes its tax law to outlaw the “football creditors” rule, but there is an interest in doing this anyway, so it is unlikely to be much of a battle.

However any move now by the EU to reign in debt is going to wipe out huge numbers of clubs that live on unsustainable debt.  Some will adopt the “Malaga Solution” of selling top players at knock down prices.  Others (Deportivo de La Coruña are mentioned in this context) will go to the wall.  And finally, the financial situation at Barcelona will be unravelled, so that we can really see just how much the regional authority does to support the club that so infamously failed to pay its players a couple of summers back.

Matters came to a head when Spain asked the Eurozone countries for €40bn in aid for its bankrupt banks while doing sweet FA about the clubs that had tax debts of over half a billion euros.  In short everyone in the Eurozone was and still is paying for Spanish clubs to go on spending and spending some more.

At the heart of the matter is “preferential tax treatment” which clubs in Spain and England get over every other business.   What is different now, however, is that clubs in countries outside England and Spain, but within the EU are asking the EU to act.  Uli Hoeness, the president of Bayern Munich, is one such.  He complained when debt figures were made public last year saying, “We pay hundreds of millions of euros to keep Spain out of the shit and then they let the clubs off their debts.”

Matters are moving, and as they are it is becoming clear that the prime trick in England is indeed the government sponsored “football creditors agreement” (wherein the UK government has failed to act after Revenue and Customs failed three times to win cases in the courts proving the agreement was illegal).

In Spain however the prime trick is for banks to be controlled by politicians who sponsor their local clubs as a way of staying in power.  “Fail to vote for me,” says the politico, “and I will stop funding your club.”  Meanwhile the banks and regional governments offer low-interest loans to prop up the clubs (and that is the issue relating to Barcelona that needs to be resolved).

Add this to the funding of clubs by publicly owned TV stations (a bit like the BBC pumping money into Liverpool FC) and loan guarantees from regional governments (which would be like the GLC giving money to Tottenham Hotspur to build a new ground) and you can see how political the situation is.

According to the Guardian, 22 clubs in Spain’s second division are now or have recently been through the courts because they are insolvent.   Deportivo – as I noted, the most often quoted club in this context – have a tax debt of €96m.  That’s not a total debt – that is just the money owed to Spain’s tax collectors.

Valencia, say the Guardian, has been owned by the state, and is now owned by the nationalised Bankia Bank (just as Liverpool FC was owned by the Royal Bank of Scotland until they could find a buyer).  So Valencia, is owned by the Spanish taxpayers just as Liverpool were for a while owned by you and me (if you are British that is – apologies to you if you are a citizen of another state – but I am sure you chance to start funding a bankrupt club will  come along shortly.)

There are also some enquiries going on into a number of Dutch clubs that have had public financial support – including PSV Eindhoven.  Now Italian and French clubs are being revealed to be paying far below market rents for their stadia as the local authorities seek to prop the clubs up.

The touch paper has been lit.  We are just waiting for the fuse to reach the gunpowder.

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27 comments to Spanish football is about to collapse; warning sign for British clubs

  • Super Singh

    Could be a hunch that is the reason why Spanish and Italian clubs have been very successful in European football? Now to reign in the unfair favouritism Man U have in the Premier league?

  • bozogooner

    Platini should have said:
    We pay hundreds of millions of euros to keep Spain out of the shit and they won euro 2012.

    3 out of 4 Euro 2012 semifinalists are bankrupt countries. Something’s not right in EU.

  • Scravaldio

    Great article its mad how governments give special treatment to these clubs and allow mines and factories to close daily while these clubs do nothing but throw the money away in wages. We should get in there and pick up some bargins. I don’t think Arsenal would ever be in this situation even if a qatar foundation or whoever took over its just not our style. We have always been a well run club and this summer will prove it. Personally I think AW will spend this summer as he knows this situation with spanish clubs can’t continue and he could pick up some real bargins. This comment probably won’t show up because I once posted I don’t like Kroneke which for some reason gets you banned on here. Some people think if your anti Kroneke then your anti AW but thats just rubbish.
    I read some where that that both Ronaldo’s and Kaka’s contracts where bought with loans from a spanish bank which Real Madrid haven’t paid a penny on and if they don’t do something drastic soon then there contracts will be owned by the eurobank in frankfurt. Anyone else heard this? We could take advantage of the situation and amke a bid? We’ve got the money why not?

  • bozogooner

    @Scravaldio interesting info on ronaldo and kaka. I wonder who really owns cesc fabregas? It seems that he spends more time promoting other commercial brands rather than playing for barca.

  • WalterBroeckx

    Scravaldio,
    I don’t think saying that you are against Kroenke itself is good enough to be banned. Maybe if insults where added then it can change.

  • WalterBroeckx

    So I own a few football clubs as I am part of the Eurozone 😉 Blimey I feel a bit Stan today 🙂

    Interesting article Tony. Oh well they could always take 10% of the savings of each citizen to cover the debts?

    I hope the authorities finally do what is right and take on those clubs that are cheating with the money of the tax payers.
    I know that in Belgium you must have a license to play in the two highest divisions. And one of the things is that you are not allowed to have overdue tax to pay. And in case you are overdue on some taxes you have to have an agreement in written with the authorities on a time schedule to pay off those debts. Failing this and you are not allowed in the two highest divisions.

    Mind you the rules have not always been applied very strict I must admit. But the stick behind the door is enough to keep the clubs paying their tax money.

  • Barndoor Bendtner

    The FFP and all the tax rules would be fantastic for AFC if only they were applied. As in most walks of life it seems that being nice and playing fair gets you Jack Sh*t.
    Until someone has the balls to chuck a big club out of a league, nothing will change. Plus that fact that the banks, clubs and governments all have a vested interest in keeping it going. Ironically we need to put our faith in UEFA and FIFA. Now I feel dirty.
    Great article.

  • Rob

    Great post Tony, well researched and thought out (as usual).

  • Mandy Dodd

    Sadly, Wenger has been predicting this, and possibly worse to come for some time. I have admired Spanish sports in recent years, especially football but wonder if things will come to an end. Financial issues… then there is the investigations into performance enhancing drugs and blood doping…. involving amongst others Lance Armstrongs doctor working with various Spanish…and other entities. Think we could hear a lot more on both these topical issues in sport in connection with Spain and other countries.

  • ARSENAL 13

    hehehhehe…..I own a few clubs too.

    India recently announced a financial aid of 10 billion USD to the Euro Zone (Part of BRICS arrangement of 75 billion USD).

    And world says, Mr Wenger (and ARSENAL) is a whiner. Hez been saying this for sometime now.

  • Rob

    @ Mandy… You say you admire Spanish sports, but surely is that not a.bit like saying you admire cheating ?… Spanish football is corrupt and is funded by corrupt politicians who use public money in irresponsible ways, as Tony Attwood has pointed out in this article.. It’s hardly a surprise that Spain as a Country is bankrupt when the government allows this sort of thing to happen and does not collect taxes owed to them by football clubs totaling hundreds of millions of Euros… I personally hope that the FFP rulings clamp down hard on these irresponsible and corrupt football clubs and finally bring some accountability into the game… Football Clubs are businesses and like all businesses they need to make a profit and live within their means.. This is why I admire the way Arsenal Football Club is run, OK I accept that many fans are disgruntled by the lack of Silverware in recent seasons but the club manages its finances in a responsible way.. If other clubs were forced to do the same in the interests of financial fair play, then we really would see a shift in power, and these Spanish Clubs you so much admire would disappear.. Financial reform is needed as soon as possible as the vast amount of money that is being poured into the game (often from dubious and illegal sources) is ruining the game… If this does not happen World Football will eventually implode on itself and we will all be left with nothing..

  • Stuart

    This led me to thinking about who would be involved in a break away league if all these other teams collapsed.

    Arsenal
    Beyern Munich

    Would be the ones top of the list I’d imagine.

  • akasuna00

    I read in ESPN that West Ham rent olympic stadium for 2 million pounds a year. Is this legal? I think Tony or Walter did a piece on this a while ago..

  • gouresh

    Nice article. But do you really think that barca or real mad will be allowed to go under? I think not & what’s stopping them selling themselves to Qatarry doggy businesses?

  • mike Collins

    as usual great post Tony

  • Domhuail

    I am sure nobody in Football seriously wishes for Clubs to disappear under a tsunami of debt and financial chaos, nor does any reasonable Football aficionado want the status quo, with its inherent corruption and favouritism. Therefore we all seek a middle ground, where teams such as United, City, Chelsea,Real, Barca, Milan, Bayern,Arsenal,PSG, etc. all compete on a relatively level playing field (both figuratively and physically) and where every professional team has a legitimate and realistic chance to improve and develop, just like the big boys.
    Where this Utopian image of the modern Football world will falter irretrievably is when it faces the few, too-powerful, criminally corrupt governors at FIFA and EUFA whose pockets come before their consciences.
    The collapse of Spanish Football would signal a major paradigm shift for European Football and perhaps world Football as well. But Spain and its constituent parts will never allow Barca or Real to fail. Their are national icons and ingrained elements of the Spanish (Catalan) identity and like English Football, will always be preserved, even at the cost of serious financial malfeasance.

  • Mandy Dodd

    rephrase Rob, I admire their ability and the way some of them play. Barca are the best team I have seen in my lifetime, although they needed a cheating ref to get past us last time. The Spain team are not bad either.
    I am a big tennis fan as well, Nadal is up there with the best of them, but can do without the cheating, corruption,poaching our players in some cases, or PE Drugs if these teams / individuals have been involved.
    If things are coming home to roost, serves the offenders right, but I will still admire the way Barca, and Spain play the game, orthe good side of the way they play the game.

  • Woolwich Peripatetic

    I can’t see the Spaniards themselves enforcing their own tax rules BUT I can see the Germans making the collection of unpaid tax revenue a condition of financial aid.
    Basically, it will destroy the Spanish football league and cause massive resentment, despite the fact that this is entirely a situation of their own making.
    Oh and whilst I agree that Madrid and Barcelona won’t be allowed to fold, you have to wonder how much the TV rights are going to be worth when they have a ten team top league (as the other clubs all went to the wall) so they only get 18 matches worth of revenue?

  • Andrei

    The debts of Spanish and British clubs are denominated in euro and pounds. So debase the currencies and problem solved. And eventually it will happen regardless of UEFA and European football woes with debt. It is just a reflection of a bigger problem with European (and Western in general) economies.

  • Vivas

    @Scravaldio. My understanding on the Ronaldo contract is that Bankia, amongst a group of banks, has security over various assets of Madrid including Ronaldo’s contract (pretty standard and I’d expect most clubs to have similar arrangements). Bankia have some quite serious issues (bad loan book, no money) and as well as receiving funding from the Spanish government, they have been receiving money from the ECB. To get such funding they needed to post assets as collateral (essentially pledging their performing loans and related security in favour of the ECB) so that if they failed to repy the ECB, the ECB would be able rely on the underlying loans to be repaid. So if Bankia fail to repay the ECB, then Madrid would pay any outstanding loan amounts to the ECB. Apologies for the long winded intro, but essentially you would need both Bankia and Madrid to default on their loans for a situation to arise whereby Ronaldo (or Kaka) would be available for a pittance (and even then it would not be in the interest of the ECB to sell cheaply). Even then given the “credit worthiness” of Madrid, there are certain to be other banks who would jump at the opportunity to lend money to them (though clearly not at the current preferential rates that Bankia).

  • Andrei

    @Rob You should probably get off your high moral horse. Arsenal are part of EPL financial pyramid. They are obviously not the perpetrators but they directly benefit from it. And they will go down with the pyramid even if as collateral damage. Which is not much consolation.

  • Rob

    @ Andrei… My earlier post was not launched from the back of any moral high horse (sorry if you interpreted it that way).. I was simply stating that the vast sums of money that flood in to the game from all sources (corruptly or legally) are having a damaging effect on the game itself.. Many clubs are living beyond their means just to remain remotely competitive.. It can’t be sustained.. As you said yourself the financial pyramid of the EPL (which obviously Arsenal benefit from, but to their credit control their spending by adhering to good responsible business management) does come crashing down then EVERY club will be damaged by it.. I agree not much of a consultation…However if financial reform is introduced and irresponsibly run clubs are forced to tow the line (by way of points deduction perhaps not financial penalty) then maybe it’s not too late… Do you think there is a better way ?… If so, I’d like to hear it..

  • Andrei

    @Rob I don’t think there is any form reform that will work within existing EPL system. It is not just overspending – EPL itself is the main culprit. It is not sustainable long term. There is nothing English/British in EPL. Its best players are not British, it cannot be supported by British economy, it increasingly relies on selling the product globally and foreign investments just to keep things running. There is no way for Manchester United, Chelsea or City to generate enough income to repay the debts in a reasonable period of time. The debts will have to be written off the league will have to go to pre-EPL state and reform. And if this were to happen (and it is a big if as there is no political will to anything of the kind) then the English league and and English clubs including Arsenal would lose 90% of their market value.

    In the bigger context it is similar with the situation that Europe is facing today. The European economy doesn’t have the level of productivity to justify the level of consumption and the resulting level of living it enjoys today. There is no way out of European (or US for that matter) debt. They have to go to pre-common wealth/welfare/entitlement/etc state to reform and become competitive again.

  • Rob

    @ Mandy… Rephrase completely acknowledged !!.. I do agree with what you say in terms of the way teams like Barcelona and Real Madrid play, it is incredible to watch at times, but any team would play like that if they spent the kind of money on the very best players in the World like they do, with blatant disregard to at least balancing their books, and not paying their taxes… The playing field needs to be leveled a bit from a financial view point, where skillful management and good coaching of young talent is rewarded by success rather than certain clubs just ‘buying’ success with money they can not possibly generate without the aid of corrupt politicians and Oil Rich billionaires… FFP might just work and in the long run and ultimately ‘save’ even those teams that are the biggest perpetrators.. As Andrei said (quite rightly) above when the financial pyramid collapses (which left unchecked it will do) then every club will suffer as a consequence…Someone has to foot the bill at the end of the day, and us supporters already pay through the nose as it is… I guess time will tell but much depends on FIFA and how strictly they apply their own rules…We all live in hope !!

  • robl

    Thanks Tony, clearly and concisely conveyed

    I think that we are going to see one hell of a dirty fight for the Spanish TV money and I would imagine some collective bargaining.

  • WalterBroeckx

    Thanks for the link Steve.

    Now is the time to start cleaning it up.
    clean it up, clean it up not the ghetto this time but the football world