Insolvency fears pose questions over Bundesliga financial management

Until the coronavirus crisis, professional football in Germany was chasing one revenue record after another. The clubs are now facing horrendous losses, but the question is: why is the impact so big in a booming industry?

Hanover (dpa) – It was less than two months ago that the German Football League (DFL) presented some dazzling figures.

For the first time in the history of the Bundesliga, the 18 clubs generated total revenues of more than 4 billion euros in the 2018/19 season.

The figure of 4.02 billion euros (4.44 billion dollars) was 5.4 per cent up on the previous season, and the 15th successive season the Bundesliga clubs posted record revenue levels.

Clubs in the top two divisions have mastered “the balancing act between sporting ambition and healthy business,” the DFL financial report published on February 18 said.

But now the coronavirus crisis and the suspension of matches in the country raises the question: is this really the case? Because just six weeks later, Germany’s Kicker magazine startled fans with a report that 13 of the 36 professional clubs would face bankruptcy by the end of June if the season did not continue by then.

As long as it is not possible to play, the fourth and last instalment from TV marketing of 304 million euros will not be transferred to the league.

According to Kicker sports magazine, the payment was not made as originally planned on April 10 but could now come on May 2.

But the difficulties posed by the current loss of revenue and the potential loss of TV income has led to calls for a rethink. Augsburg president Klaus Hofmann said in an interview with the Augsburger Allgemeine that “drastic changes” were needed in the league’s financial affairs.

A crucial reference to financial management can be found in the DFL business report, which shows that the 18 top-flight Bundesliga clubs paid more than 1.4 billion euros for the salaries of their coaches and players in the 2018/19 season.

Personnel costs are the biggest expense factor for clubs – and the trend has been rising for years.

This crisis is now showing that the booming football industry promptly spent a large part of its income without much in the way of long-term thinking and without protecting itself against risks.

According to the DFL economic report, the equity ratio of the Bundesliga clubs did in fact increase from 40.1 to 47.7 per cent in four years. But that does not mean that all clubs operate strategically.

“It depends on the liquidity buffer – and the amount of equity. Clubs that have made provisions and have sufficient resources are best able to come through the crisis,” sports economist Christoph Breuer said in Wednesday’s Welt daily.

The fact that clubs had neglected to make provisions with reserves was perhaps due to the fact revenues constantly rose over the years. Roughly speaking, every club has been able to make more money tomorrow than it does today.

Even a club like Werder Bremen, who have a reputation for being particularly serious in its business affairs, spent around 15 million euros on new players in the last transfer windows – without making anything from sales.

Due to various contract extensions, Bremen already reported significantly higher personnel costs in their balance sheet for the 2018/2019 financial year.

In addition, they initially only signed Leonardo Bittencourt and Oemer Toprak on loan, but have already made purchase commitments of around 10 million euros for both this summer.

It was always clear that Bremen can only balance this through player sales. These transfers – for example for the possible sale of Milot Rashica – were only planned for summer 2020.

A coronavirus crisis that is depressing prices on the transfer market and a disastrous season – with the club lying second last – that eats into players’ market values was not part of the club’s scenarios.

Werder chairman Klaus Filbry said that what was now affecting football was neither predictable nor insurable and “no reserves would have helped either.”

Even in times of revenue records, there are still risks inherent in top European football that do not exist generally in American sports without a system of promotion or relegation.

Whether you reach the Champions League or miss out, whether you stay in the Bundesliga or are relegated: these financial factors are so big that sports economist Breuer speaks of a “rat race” that fuels the tendency to think in the short term.

“The number of clubs that invest to achieve a sporting goal with the prospect of lucrative earnings is significantly greater than the number of clubs that can realistically achieve that goal,” he said.

The question remains: what consequences will the clubs draw from the horror of the coronavirus crisis in the medium and long term?

“The distribution of TV money will be an issue that will certainly be discussed. But it is also about the question of whether the league can centrally launch a fund,” Filbry said last month.

A fund into which, for example, part of the TV money could flow and which will better protect clubs against unforeseen crises in the future.

In his foreword to the DFL financial report, Christian Seifert of the league executive committee said the 36 Bundesliga clubs “in total enjoy solid economic stability.”

But this month in an interview with Die Zeit weekly he said a lesson from the crisis would be learned if clubs now realized that “reserves and a functioning business model” were more important than some previously thought.