A couple days ago twelve top European football clubs decided to create a new breakaway competition called the European Super league with the stated goal of reforming football. And while this might seem like a rather benign enterprise, the announcement has thrown the footballing world into chaos. So in today's Finshots we explain why this is the case and lay bare the economic incentives driving outcomes.

The Story

You’re probably thinking — “Why a story on football when there’s so much else going on around us?”

Well, because this story really isn’t about football. It’s actually about money. So please bear with us, while we explain why this is a story that should concern you even if you weren’t a fan of the sport.

Football is a global sport. And European Football in particular is the crown jewel. Each country in Europe has its own domestic league. The top league in England, the "Premier League", for instance, is the most widely followed football league in the world. But despite all the glamour, an essential feature of the domestic league is that it fosters competition. If you don’t do well in the premier league, you get relegated to the lower leagues in England. And if you don’t perform well in the lower leagues you get relegated to the non-leagues. Alternatively, if you perform well in the lower rungs, you could be promoted to play in the Premier League someday. It’s a neat structure that’s built on the foundation of meritocracy.

And this structure extends to all of European football. When you perform well in the Premier League for instance, you get a chance to compete with other elite clubs from Europe—in the Champions or the Europa League. All the top clubs from Spain, Germany, France, etc can be a part of these elite competitions so long as they're the top performers in their respective domestic leagues. And if you were to emerge victorious here, you can be crowned champions of Europe. Once again, the system prioritizes meritocracy.

However, the creation of the new European Super League threatens these very foundations. And to understand why, you have to look at the people in power.

The major European competitions are currently administered by UEFA — one of six continental confederations of world football’s governing body FIFA. And UEFA’s internal club competition committee, alongside the 55 national association members are responsible for drawing up policy prescriptions on the most prominent European competitions i.e. The Champions League and the Europa League. As the website notes —

Amongst other things, the committee draws up recommendations regarding possible modifications to the existing competitions and to the regulations governing these competitions

But that’s not all. They’re also responsible for proposing models on “the distribution of club competition revenues.” We are talking about billions of dollars in potential income each year. And even though, the top European clubs already exert considerable influence on how decisions are made, they would argue that they should have an even bigger say on matters. We are talking about clubs like Real Madrid, Barcelona, Arsenal, Manchester United, and Liverpool. They bring in all the money and people across the globe tune in to watch the Champions League and the Europa League because they’re fans of these clubs. The broadcasting money, the ticketing revenues, the sponsorships deals —their influence is far reaching. And they use this financial muscle power to entice top players in football, further cementing their position as iconic brands.

The owners here know this all too well. However, despite being the star cast, these clubs are often forced to share revenues and cede control because they aren’t the arbiters of these competitions. And if you’re looking at this arrangement dispassionately, you can see why there’s every incentive for the top European clubs to bypass UEFA altogether. You can set up a separate league and ringfence revenues — Keep it all within the group. And when you have the top clubs slugging it out day in day out, you are also likely to make billions in additional income. So at a time when these clubs are reeling from financial constraints — precipitated by the lockdown, the economic argument only provides more impetus to breakaway from the existing structure.

But there’s more. Today, if you don’t perform well in the domestic leagues, you can’t make it to the European competition. And if you don’t make it to the European competition, you lose more money. Despite being top clubs and globally recognizable brands, the 12 founding members of the new European Super League aren’t necessarily the best teams — when you assess them on footballing merit alone. Arsenal, (a Super League Member and a club that I dearly love), hasn’t made it to the Champions League in 4 years now. They simply haven’t been good enough. And since the current competitions are built on the premise of meritocracy, some of them don't even get a chance to play in the Champions League or the Europa League consistently—stripping them of broadcasting and ticketing revenues. This is an economic disincentive.

Think of it this way. A profitable enterprise is built on principles of economic certainty. Steady cash flows are an essential feature within any thriving business enterprise. Competition meanwhile, at its very core, is an uncertain endeavour. It’s why people love sport in the first place. The agony of defeat, the pure bliss of victory — These emotions can only emerge when there’s uncertainty lurking around each corner. If you knew your team was going to win every time, you wouldn’t watch sport in the first place, would you?

So here we have economic incentives clashing with competitive proclivities. And when you have an impasse like this, something has to give. Either the competitive nature of sport triumphs. Or the economic incentives bulldoze through resistance.

And it seems, the founding teams of the European Super League are pushing through with their plans despite resistance from fans, players, coaches, critics, and even the government, believe it or not. The new European Super league will have 12 founding members, 3 additional permanent members, and 5 members who could qualify for the tournament via other routes. The permanent members will participate each year no matter how they perform in these competitions. They will have guarantees on how to share broadcasting revenue. And they will likely keep a lion’s share to themselves. In fact just a day after the announcement, the stock price of Juventus Football Club (one of the founding members of the Super League) rallied as much as 10%. And while this might improve the financial health of some of these clubs, many people believe it will destroy grassroots football forever.

FIFA and UEFA meanwhile have threatened to bar all players from playing in their competitions (including the World Cup), if they participated in the newly founded European Super League. Imagine what that would do to these other competitions. The domestic leagues would be crippled. Without the best players competing in the World Cup, interest would wane. Football outside of the European Super League, might be rendered meaningless and stripped of all its glamour and panache, overnight. It’s a disaster for football.

Why are FIFA and UEFA threatening the players you ask? Well, because the European Super League poses an existential threat to both these organizations. It’s a breakaway league created by a small coterie of businessmen, who will likely prioritize their own self-interest above all else. If they don’t nip this in the bud, other competitions might have to play second fiddle. Every football club that isn’t part of this elitist group will likely have to be subservient to the needs of the select few. It’s a dystopian nightmare.

Meanwhile, Florentino Perez — The chairman of the Super League and the current president of Real Madrid (another massive European Club) had this to say when quizzed about his motives for creating a separate league.

Everything I do, I do it for the good of football. 40% of young people aren’t interested in football, because there are too many games of low quality. And we had to adapt.

He then took a dig at UEFA stating —

It’s over. Their monopoly is over. It’s time for a new era

Sure, UEFA might have been a monopoly. But the current structure isn't any better. A cartel of 12 clubs deciding what’s best for football is just that — A cartel. They’re not answerable to the fans. They’re not answerable to the players. They’re only answerable to themselves. That can’t possibly be good for the game.

The British Prime Minister meanwhile has chipped in suggesting that they’re looking at introducing regulations to prevent the formation of the Super League. Insiders however are suggesting that the top teams are already prepared for a protracted legal battle to protect the status of the newly founded league. It is quite unbelievable really. Within 2 days, a few rich businessmen have managed to throw the world of football into turmoil. The concentration of power in the game of football (if it wasn’t evident already) is now there for the world to see.

You don’t matter. The players don’t matter. The game doesn’t matter.

The only thing that matters is Money.

Truly unbelievable.

Until next time…

Update: Owing to intense public pressure from fans, players and other members of the footballing community, the European Super League is likely to be disbanded after several founding members withdrew their support from the competition.

Written with inputs from Indifoot sports, an Indian startup trying to improve grassroots football in India

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