Editorial: The Effects of the Global Credit Crunch on European Football

By now, anyone capable of accessing this article is well aware of the financial crisis that has affected every part of the industrialized world.  These days, not only are private investors defaulting on their loans, but even creditors themselves.  It naturally follows that football clubs be abnormally modest in their ambitions during this year’s January transfer window.  Here are a few economic factors to consider:

1) The Decline of Oil

After starting their 2008-09 campaign with a 6-0-2 league record, Chelsea have since faltered.  On October 26, they suffered their first loss at Stamford Bridge in more than four years, a 1-0 defeat to Liverpool.  Five weeks later, they suffered another home loss to Arsenal.  To make matters worse, Chelsea only managed a second-place finish in Champions League group A, finishing one point behind struggling Roma.

And yet, Chelsea are expected to be uncharacteristically quiet during this year’s midseason transfer window.  Why is oil billionaire and Chelsea sugar-daddy Roman Abramovich prepared to keep his checkbook closed?  A look at the oil market will tell all.

Fuelled by the rapid growth of middle classes in Russia, Brazil, India, and China, oil prices surged to record highs this summer.  The recent credit crisis has slowed growth in the aforementioned emerging markets, lowering prospects of future oil demand.  Consequentially, the price per barrel of light, sweet crude oil has fallen nearly 75% from its July high of $147.27.

Accordingly, Abramovich has taken a massive hit—his losses are estimated at upwards of 88% of his wealth and is sure to keep mum in the transfer market this January.

2) Credit

For clubs that rely on the proletariat for the majority of their disposable income, the financial crisis will undoubtedly see losses in revenue from ticket and merchandise sales.  While this problem may at first seem a minor inconvenience, for heavily indebted clubs—Valencia, Liverpool, and Manchester United, namely—a substantial loss in revenue could induce panic as managers try to make regular payments on their loans in spite of their having less revenue to use.   In order to balance the books, some clubs may have to offload star players.

3) Inflation

In England, the once strong pound sterling has lost value against the Euro, its value having fallen so far that the two currencies are now approximately equal in worth.  This will come as welcome news to fans of the leagues in continental Europe: at last, they will be able to make transfer bids and contract offers without having a consistent 40-50% currency discount relative to offers from Premiership clubs.  Based on last year’s Forbes figures</a>, inflation has decreased the value of England’s “big four.”  Unadjusted for debt, England’s perennial overachievers recently ranked 1st, 3rd, 4th, and 8th among Europe’s wealthiest clubs.  Considering inflation since Forbes’ April 2008 report, the gap between Manchester United and Real Madrid has fallen from €329.6m to €270.3m, and although Arsenal and Chelsea respectively remain the 3rd and 8th wealthiest clubs, Liverpool has slipped to 5th.

The longer the credit crisis lasts, the more likely we are to see dramatic shifts in power.  Here are the latest predictions from my crystal ball:

The Losers:  

-England: the weakness of the pound may not greatly affect the Premiership’s wealthiest clubs, but no longer will teams like Tottenham be able to afford off-season spending sprees of €55m.

-Valencia: “Los Che” are heavily in debt, but are fortunate to have a tremendous amount of capital in their squad: David Silva and David Villa could each fetch €50m or more.  Since last summer, Villa has been linked to several large clubs, and while Valencia have been reluctant to consider any bid, they may soon have no choice but to offload their star striker.

The Winners:

-Continental Europe: clubs from La Liga, Serie A and the Bundesliga are already able to offer contracts and transfer fees without a discount relative to the pound.  With time, the Euro may continue to gain on the pound, resulting in a bidding advantage for continental European clubs in the struggle to sign and retain the world’s greatest talent.

-Germany and France: This actually goes for all teams with little to no debt, so include Chelsea (more or less) Barcelona, AC Milan, Juventus, and Inter Milan, among others. While they will be less able to sign new stars, Europe’s most financially stable clubs will at least be able to keep their own players.  What’s more, they will have less competition in the transfer market as indebted clubs opt to remain quiet.

-The spirit of competition:  One of my favorite features of the Bundesliga is its constant evolution.  With the exception of Bayern Munich, there is no superpower that nearly always earns a place in the Champions League.  In its history, the Bundesliga has had no fewer than 40 teams win the league title; in fact, it’s common to see the champions of years past in the third division or even lower.  So naturally, the EPL’s recent dominance in Europe has concerned me.  The financial crisis will have a widespread regulative effect that will not just decrease the gap between the Premiership and leagues from continental Europe, but will also bring about more competition in domestic leagues.  Juggernauts will slip, if only slightly, and competition will once again reign in Europe.

Clark Whitney, Goal.com