Is Hoffenheim the last of its breed?

It all started innocently enough more then 20 years ago. Dietmar Hopp decided to support the team he played for as a striker in his youth with some footballs. Years later Hopp decided to spend huge bundles of cash on the club. UEFA says it wants to avoid billionaires like Hopp to buy their way into Europe’s finest leagues. A brief look at the financial fair play rules.

Mr. Hopp spent a staggering total of 240 million Euros, and bankrolled with this huge amount of purchasing power Hoffenheim’s way from the 8th tier of German football into the Bundesliga. Between 2007 and 2009 alone, Hoffenheim needed financial help for losses in the extent of 65 million euros.

No problem if your biggest fan is a software billionaire. Other clubs that now try to find their way into the Bundesliga from very low divisions have seen that the Hoffenheim model works, and are now trying to emulate it. RB Leipzig, formerly known as SSV Markranstädt, has found a part owner that is willing to splash out massive chunks of cash in an Austrian soft drink producer that is mainly known for a gummy bear like tasting soft drink. However, UEFA wants to stop the likes of Rasen-Ballsport Leipzig from reaching the European competitions too easily with a new set of rules.

Financial fair play rules
The new set of rules that UEFA is trying to enact seem rather strict on paper. Beginning in 2013/2014 UEFA will deny any clubs that have had a higher deficit then 5 million Euros per season since 2011/12 to qualify for the Champions League and the Europa League. Kieron O’Connor, best known from his football economics blog “The Swiss Ramble” explains:

All that UEFA are saying is that clubs will not be allowed to compete in their competitions (Champions League and Europa League) if they do not break-even, but clubs making losses could continue to compete in their domestic league without any sanctions, so it is theoretically still possible for a wealthy benefactor to finance a team’s progress through its domestic leagues, though he would have to reduce funding at some stage if he wants his team to play in Europe.

However, the accounts don’t need to be absolutely perfect for the first monitoring period in 2013/14, as rich owners will be allowed to absorb aggregate losses (so-called “acceptable deviations”) of €45 million, initially over two years and then over a three-year monitoring period (so averaging €15 million a season), as long as they are willing to cover the deficit by making equity contributions. The maximum permitted loss then falls to €30 million (over three years) from 2015/16 and will be further reduced from 2018/19 (to an unspecified amount).

So, the argument that has been circling around in the German media that the financial fair play rules will stop RB Leipzig from reaching the Bundesliga is not entirely correct. If the same licensing rules are implemented by the national federations, this could potentially stop teams like RB Leipzig just buying their way into the Bundesliga. That has not happened at this moment.

Dietmar Hopp recognized the danger to his beloved Hoffenheim side a while ago, and is now demanding that his club is lead with a financially sound hand. No more hand outs from Hopp, and a willingness to sell the best players at high profit to break even on the balance sheet is now the name of the game for the South-German club. But, when comparing RB Leipzig and Hoffenheim, one has to bear in mind that both teams are at a different stage of their progression, and that Hoffenheim have been getting closer and closer to reaching European competitions.

Are there any loopholes?
UEFA itself has said that it will apply those rules as vigorously as possible, and it will also try to close the loopholes that clubs discover to get around the new rules. Possible jersey deals between club owners companies and their teams have been discussed, but this sort of thing will be monitored, according to O’Connor:

This is an area where those fans that have not bothered to plough through UEFA’s regulations (and who can blame them?) see an easy way to reach the break-even target. Why doesn’t a wealthy owner sign a €200 million sponsorship deal? Or pay €50 million a season for a super-VIP executive box? Or buy 10 million shirts emblazoned with the number of his favourite player?

Unfortunately, that simply is not possible, as UEFA have introduced the concept of “fair value” so beloved of tax authorities when reviewing inter-company transactions. In short, if an owner over-pays for services, this will be adjusted down to market value, i.e. what the club would have received if the transactions were conducted on an “arm’s length” basis. Obviously, there is still some scope for manipulation, especially as market value is notoriously difficult to assess, but the most blatant excesses should be prevented.

Furthermore, it has been argued that reaching the top now has become more difficult for mid-table teams. O’Connor understands that train of thought:

There is a risk that these regulations will simply entrench the current leading teams, “survival of the fattest” as it has been termed, and that they will be an unfair barrier to mid-table clubs, as they will not be able to spend enough money to improve their team.

However, there’s nothing to stop a wealthy benefactor joining a club, investing his money in a new stadium or developing the youth academy and increasing a club’s revenue in those ways, as such investment is excluded from UEFA’s break-even calculation. Of course, that means that the journey would probably take longer, but that’s not necessarily a bad thing.

 

What about RB Leipzig then?
Leipzig will certainly struggle to get into the Bundesliga within 5-6 years, as they first had planned. Dietrich Mateschitz said in a statement that “creating a football team out of a group of bought into loan soldiers and lead it to the Bundesliga is easy. We want to create something from the ground up, and therefore we will prioritize our young players in the youth academy.”

His company has certainly put the money where his mouth is, and invested in a 30 million Euro training and youth centre in Leipzig. One can wonder whether or not this investment in Leipzig is a direct result of the new rules, or if Mateschitz always had planned to storm into the Bundesliga with young local talents. Judging by how RB Leipzig started out, by investing a lot of money into players and a new coaching staff, one could argue that this move displays a change in strategy.

The way RB Leipzig and Hoffenheim have reacted to the new rules might suggest that their benefactors actually see a strong possibility for the financial fair play rules to be applied on a national level by the DFB. This, in turn would make it more difficult to march from the lower tiers of German football into the Bundesliga, and one could indeed say that Hoffenheim are the last club of their breed in Germany.

Our thanks go to Kieron O’Connor for answering our questions. You should visit his blog, The Swiss Ramble, and follow Kieron on Twitter as well.

What do you think of the new UEFA financial fair play rules? Leave a comment below.

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Niklas Wildhagen

Niklas is a 30-year-old football writer and podcaster who has been following the Bundesliga and German football since the early 90s. You can follow him on Twitter, @normusings, and listen to his opinions on @TalkingFussball and on the @AufstiegPod.

11 Comments

  1. Uli set himself up for possible failure though. He is very vested in the proper execution and effects of the FFP rules as a great equalizer. What if it doesn’t pan out that way and Bayern continue to fail to be competitive?

  2. well, that is great for all the German clubs, because most of them are in great shape… Uli Hoeness is a great fan of FFP…

  3. to be fair, im skeptical about the enforcement of these rules. Most clubs in Spain or Italy will fail these in their current shape. Morever big clubs can always hire lawyers smarter than the rules. I will believe it when i see it.

  4. Yea, lots of annoying prepubescent wannabe Messis and Ronaldos running around the city now in their small to medium sized RBNY track suits.

  5. I’d be in favor of that Hamburg deal. Especially if it includes the Hamburg players only eating Burger King food!

  6. Cris: Thanks, didn’t know about RBNY digging deeper into a grassroots program. So often you hear about the glitz and glamour as they possibly will be competing with a reborn NY Cosmos in the city soon.

    Nik: Of course, I was kidding with Jena–really, Burger King should do a deal with Hamburg and rebrand as the Hamburglar Kings. Makes sense!

  7. More recently RBNY have been doing much more grassroots investment, aka backing and introducing more youth programs, which in itself is quite promising. The structure isn’t the same as in Europe though so there are discrepancies that could hold back future progress. That would require an additional overhaul to overcome, which I’m not sure the USSF and MLS are ready to compromise on.

  8. Indeed. As Kieron said, if you want to get to the top you have to go the long route now, through building new stadiums, invest a lot of money in your youth academy and so forth. Not necessarily a bad thing, but it might ultimately hurt competitiveness. But, it will also avoid another Leeds United scenario… I share your cynicism about the big teams finding loopholes. The likes of ManCity are probably employing an army of lawyers that try to find out how the team can get round those rules.

    Carl Zeiss is already a company team, or it was during G.D.R. times. Another company in their title would maybe be a little bit overkill. Personally I would like companies that produce products with pleasing colors or/and taste, like “After eight” to buy football teams. Imagine Werder changing their green color slightly, and the team being called “After eight Bremen”. That would be lovely.(also I am kidding)

  9. I’ve been a bit concerned how the leagues and European competitions will look going forward. Despite the English and Spanish leagues being mostly locked into Haves and Have Nots, Fair Play seems like it might reinforce that status and complete the consolidation whereas the intent was to level the playing field. Also, the cynic in me says potential loopholes will be found and exploited to the utmost, which would leave the Have Nots still without a chance to compete.

    As for Red Bull, it’s funny how the company approaches its clubs given the market–in Leipzig, an investment in youth is the priority given the regulations in UEFA. In MLS, RBNY goes for the designated players like Thierry Henry and Rafa Marquez as headliners in a world media capital.

    Personally, I want Burger King to move from shirt sponsorship into naming clubs after themselves–BK Berlin or the Carl Zeiss Jena Burger Kingers would be awesome (kidding).

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