economics

New Generation of Investors Test Football’s Financial Protections

Published September 6, 2017 by Carl De Luna
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European footballing body UEFA recently announced that it was opening an investigation into the extravagant summer spending habits of French club Paris Saint Germain. The Ligue 1 club were responsible for the world’s biggest transfer with their $258 million (£198 million) purchase of Brazilian superstar Neymar from Spanish club FC Barcelona. Paris Saint Germain activated Neymar’s release clause which was thought to be too expensive for anyone to afford. However, they have proven that otherwise. To add salt to the wound, they secured an initial loan deal for French striking prodigy Kylian Mbappe from fellow Ligue 1 club and current champions AS Monaco with an obligation to pay $216 million (£166 million) for the outright transfer of the teenage striker next year. Their enormous recent transfer activities were enough for the Investigatory Chamber of the UEFA Club Financial Control Body to investigate as part of its monitoring of clubs via the Financial Fair Play regulations. The investigation would be centered around the compliance of Paris Saint Germain with the required break-even target threshold with their recent transfer activity being put under scrutiny.

However, Paris Saint Germain’s recent transfer activities represent the enormous power and money being brandished by their owners, Qatar Sports Investments. Qatar Sports Investments is a Qatari owned fund which seeks to dedicate investment in leisure and sport ventures at the national and international level and in recent times have splurged to get some of the best players to play in the French capital and they were willing to go thru various channels to fund the Parisian club. In fact, they were punished in 2014 as their $218.46 million USD (£167 million) endorsement deal with the Qatar Tourism Authority was found to be of unfair value by UEFA’s independent investigation panel. As a result, they were fined $26.16 million (£20 million) and limited their playing squad for the 2014-15 UEFA Champions League from 25 players to 21 players.

Paris Saint Germain were not afraid to push the boundaries of even the rules to get the best players for maximum chances of commercial and competitive success. Since Qatar Sports Investments took over as Paris Saint Germain’s owners, the club has won silverware and has become a notable fixture in the renowned UEFA Champions League. In just a short period of time, they have transformed Paris Saint Germain from the doldrums into one of Europe’s elite football teams. They have been similar in their rise as English club Manchester City, who were purchased by the Abu Dhabi United Group. The group is a private equity entity owned by Sheikh Mansour bin Zayed Al Nahyan, a member of the Abu Dhabi royal family. They also were not shy to take out the cheque book in their bid to become one of England’s best teams and gradually Europe’s best. But this is where the comparisons end as the group has the City Football Group which has bought stakes or owns clubs in the United States, Uruguay, Spain, Japan and Australia. This structure has enabled them to broaden their reach across different places and continents. It also gave them the platform to give their younger players the experience and development that they need to become top players. Their investment in the city of Manchester and youth development has seen them among the biggest investors for the future.

But why is Qatar Sports Investment keen on improving their stead in the world’s biggest sport? Salford University sports enterprise professor Simon Chadwick argues that it is not about football but it is about soft power. The Neymar transfer is about flaunting their soft power and thus a bigger global perception. It can also be argued that Qatar is doing its best to remove the attention it received a few months ago as being isolated by its Gulf neighbors. The enormity of the transfer is a strong message that it can stand on its own. It is also a matter of improving their image as the recent construction activity for the stadiums for the 2022 World Cup in Qatar. Workers on the stadiums are usually from India, Nepal and Sri Lanka and they have been exploited via the kafala system, which prevents the migrant workers from shifting jobs and leaving the country without a permit. Despite promises of reforms and a change of heart toward the outlook of the workers, organizations such as Amnesty International have alleged that the new law only removes the word “sponsorship” but the system stays the same. Qatar has denied the claims and says that they have revamped the system with a “modernized contract-based system that safeguards worker rights and increases job flexibility”.

The Neymar transfer is also about Paris Saint Germain getting even with FC Barcelona for trying to unsettle their Italian midfielder Marco Veratti and thus were adamant that they can get back at them by activating Neymar’s release clause. But Neymar will surely increase PSG’s presence and popularity especially in South America and Neymar’s home nation of Brazil. The talented superstar joins the growing stable of Brazilians such as defenders Marquinhos, Thiago Silva, Dani Alves and midfielder Lucas Moura and fellow South Americans, Edinson Cavani of Uruguay and Angel di Maria of Argentina. PSG can take advantage of this to increase their following in the football hotbed of South America and they can displace the likes of FC Barcelona and Real Madrid as the popular teams in the continent.

PSG must follow the Financial Fair Play regulations that were put into place to make teams balance their books. The FFP is a rule to avoid overspending of teams and mismanagement due to enormous debts which cannot be paid. However, it is being tested as new money-laden teams such as PSG and Manchester City have been pushing the boundaries of spending limits despite their smaller revenues compared to the traditional big boys such as Real Madrid, Bayern Munich, FC Barcelona and Manchester United. But investment is necessary to increase competitiveness and investment in the game and the community. Football is more than just a sport, it is also a business. History tells us that businessmen and companies have long invested money to reinvigorate football clubs, but not all are successes. Thus, the importance of long term planning is necessary to sustain the gains of investment. This is applicable to businesses and life as well. The right strategy is needed to reach the desired goal in the future.

The PSG transfer also unknowingly showed to us the emerging soft power battle being flaunted by Asian nations. China has been doing that by its heavy investment in its domestic league and luring the likes of Brazilian stars Hulk and Oscar. The said investment is in line with Chinese President Xi Jinping’s vision of a Chinese victory in the 2050 World Cup. Chinese companies are also starting to buy significant stakes towards European football and this will become a gateway for Chinese players and coaches to gain better immersion of the football culture in Europe.

It will be interesting to see this phenomenon pan out in the future. We are witnesses to an evolution on how a sport evolves into something more intertwined with our own local life. Something tells me that it will be good for all as people will be more invested and motivated to provide the better product and bang for the buck. Hopefully it will further showcase human creativeness and ingenuity to get the desired outcome.

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