Spain, 'Russian Galacticos' & Soccer (Un-)Economics

♠ Posted by Emmanuel in ,, at 9/11/2013 05:26:00 PM
I nearly forgot to make this post as the transfer deadline for trading players has ended, but as they say, better late than never. So, there are two parts to this story dealing with the economics of soccer in relation to the "real economy": Spain's Real Madrid and the dismantling of the "Russian galacticos." Never heard of them? Well, read on...

First, I am astounded by the spending of Spain's largest football team Real Madrid considering that there are now "financial fair play" regulations that are supposed to limit what teams spend relative to what they earn. They are supposed to be penalized for spending more than what they earn, but Madrid is supposedly the world's largest football club in terms of revenues. So, Real Madrid may actually afford their latest star signing, Gareth Bale, formerly of Tottenham Hotspur, for an astronomical (and unprecedented) EUR 100 million. Legendary French player Zinedine Zidane has even said that no player is worth that much money.

More importantly, the optics of Bale's transfer do not favor Real Madrid. After all, the unemployment rate in Spain is 26.3%. Also consider that the youth unemployment rate in Spain is at a similarly inconceivable 56.1%. At age 24, Bale would still belong in the "youth" age group (15-24). What exactly does his signing say to an increasingly inequitable society beset by very limited employment opportunities for Spain's young people due to structural factors? Let me put it to you this way: the transfer fee excludes wages, but EUR 100 million alone would be the equivalent annual household income for 4,376 Spanish households. As I said, the optics are quite bad in recession-hit Spain. That he's even a "migrant worker" of sorts makes things worse since there are so many jobless at home.

Next, did you hear the one about the Russian galacticos? Real Madrid popularized the term when they had stars such as Zinedine Zidane, Luis Figo, Ronaldo (de Lima), Roberto Carlos (the only Brazilian player of note using his surname?), David Beckham, Raul, and Iker Casillas in the early Noughties. Unbeknownst to many, Russian club Anhzi Makhachkala recently spent a similar fortune attempting to assemble a team for the age that is now disposing of in a fire sale. I am not making a specious analogy: Roberto Carlos himself played for Anzhi for a while. during his twilight years. Mind you, there were marquee players in their prime as well in the  $400M spending spree including 3-time Champions League winner Samuel Eto'o and Christopher Samba.

Never heard of Anzhi Makhachkala? It is owned by Russian billionaire Suleyman Kerimov who made his fortune through his participation in the phosphate cartel (phosphate is a key component of fertilizer). With the recent demise of this cartel, let's just say Kerimov's future revenue streams to fund his dream team have disappeared. With this team underperforming by its own admission in the Russian league, there was no reason to keep it intact besides:
But this was no joke. In the hours that followed a series of announcements, each more puzzling than the other, confirmed "The Anzhi Project", at least as we previously knew it, was coming to an end. Suleyman Kerimov, Anzhi's billionaire backer since January 2011, was no longer happy to finance a gravy train. The club's budget, officially quoted at an extravagant £116m per season (second only to Zenit St Petersburg in Russia), was to be reduced to between £32m and £45m.
There have also been comic signings of buying and selling players for the same amount in quick succession as the phosphate cartel and a large part of Kerimov's fortune went away:
On July 4, Anzhi sign Russian starlet Aleksandr Kokorin from Dynamo Moscow for $25 million. Thirty-three days later, he's sold back to Dynamo for the exact same amount. On July 15, Anzhi buys veteran midfielder Igor Denisov from Zenit St Petersburg for $20m. A month later, he goes to Dynamo Moscow for ... exactly $20m.
This after hiring and firing coaches Roman Abramovich-style and the rest of that circus. They say that the best way to make a small fortune in football is to start with a big one, and that joke apparently holds in Russia. Simply put, the economics were dubious from the start. Not only is Kerimov trying to unload football players but even the potash business as prices drop. As for Real Madrid, even if Gareth Bale's signing does not impose significant financial hardships on the club, the very act of signing him does not bode well in a most austerity-hit nation.

But then again, whoever said that football finances had anything to do with economic reality?