Debt among soccer club teams in Europe is at all-time highs, with no end in sight. Several of the top teams face hundreds of millions of dollars in debt. In an effort to continue their success, soccer teams enter bidding wars for the best players, which can sometimes reach over $100 million for a single player.
Spain is home to two of the world’s most popular soccer teams, both of which lead the world in debt. After the 2010 season, F.C. Barcelona was in debt $578 million (according to ESPN) after spending well over $100 million on three new players the previous summer. Barcelona even had to take out a $195 million bridge loan just to be able to pay its players. The team continues to spend without limits, just last week (June 30, 2011) extending a player’s contract and adding $60 million over the next five years, on top of his already $90 million contract.
F.C. Barcelona’s main rival, Real Madrid, has similar spending issues. Real faced $448 million in debt after the 2010 season, in spite of revenue over $500 million which include a TV contract worth $200 million. Real continues to spend millions each summer with no regard for debt or future consequences.
It’s Not Just Spain
The 10 most indebted teams in Europe owe a combined $5.74 billion dollars, according to The Guardian. England’s top league teams owe over $4.5 billion, accounting for 56% of all European soccer’s debt.
Record-breaking transfer fees continue to grow in frequency and amount year-over-year. In January 2011, Chelsea F.C. paid $71 million for striker Fernando Torres, contributing to a record-breaking $322 million spent in one month across the English Premier League.
How Did This Happen?
The reasons so many top teams are in debt are very similar to the reasons so many people are in debt: greed, irresponsibility, overspending, ignoring a budget or not having one at all. Club soccer teams are financially run by one person – the chairman. These chairmen are often egotistical and greedy, without a grip on reality. They spend freely, with the view that the team will recover the money through revenue. In general, the teams who spend the most on players win the most.
The chairmen believe that the only way to turn a profit is to win, and the only way to win is to spend. Unfortunately, this is a vicious cycle that causes many teams to operate without profit and sink into hundreds of millions in debt.
How do teams get out of debt? It’s no easier than individual people who struggle to get out of debt. It takes a lot of hard work, organization, commitment to financial responsibility, and proper oversight. The more money teams are allowed to spend, the more they will incur debt.
Soccer teams can be viewed as a consumer who doesn’t have to face his/her credit reports. The team spends freely without worry of the consequences until it’s too late.
What do you think the solution to soccer’s debt problem is? Should teams be allowed to spend as much as they want?
Image Source: majorleaguesoccertalk.com
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