Once a 'league of stars,' Spanish pro soccer crashes down to earth

The consequences of Spain's economic crisis have been wide-reaching, with ongoing recession, record unemployment, and broad public dissatisfaction with the government.

But perhaps the most humbling consequence of all for Spaniards – at least those who are soccer fans – is about to arrive.

Long one of the top-flight soccer leagues in the world, Spain's La Liga looks set to come crashing down to earth when it starts the new season on Saturday. Spain has produced not only some of the world’s most successful sporting organizations, but soccer's best national team as well. Now the country's legendary reign in soccer is under threat as its league struggles to bring skyrocketing debt under control.

La Liga, Spain's 20-team top division, nicknamed "La Liga de las Estrellas" (the League of Stars) for attracting some of the world’s best players, thrived on debt-driven growth for more than a decade. In June the government bowed to pressure from UEFA, European soccer's governing body, to enforce existing regulations and force teams to put their balance sheets in order. That launched a league-wide effort to render the soccer industry economically viable by reversing plummeting revenue and fixing a broken system through unprecedented austerity and painful reorganization.

The pain is not evenly spread, but neither is the economic mismanagement that involves team executives and government officials as well as banks and fans. Even giants Barcelona – club of Lionel Messi and Neymar Santos – and Real Madrid – where Cristiano Ronaldo plies his trade – are in crisis mode, albeit they are financially sound, unlike the majority of their peers.

And just days before the season starts, the exodus of talented players is unprecedented as teams cut costs, especially in players’ salaries and transfers.

“The priority now is to survive. Almost all clubs have imposed salary cuts of at least 25 percent,” Francesc Pujol, economics professor in Universidad de Navarra and an expert in sports finances, says. “Those which are viable will survive, and that are not will disappear.”

Football austerity

The system is broken, all agree. Soccer in Spain has always been considered a social asset by fans and authorities, rather than a business. As a result, it was shielded on one end from having to make money but unjustly limited in creating revenue on the other. Teams weren't allowed to fully monetize television rights, as the English league does, for example, but instead received indirect support via regional, government-backed debts.

The system yielded a negative turnover annually, piling on debt faster than their teams' revenue increased. La Liga accumulated around 3.6 billion euros ($4.8 billion) of debt by the end of the 2011 season, according an official report released in June. Around 700 million ($935 million) of that is owed to the state as back taxes and social security. Most of the remaining debt came from regional banks, many of which were nationalized. 

Several recent reports suggest the debt decreased slightly in the past two years, but the economic crisis is highlighting the need to reorganize sports industries in Spain to render them viable.

The government gave teams until 2016 to cut their overall debt burden by 25 percent in three years, or face being banned from Spanish competitions. Several clubs have already been barred from participating in European tournaments due to their debts.

Now that cash-strapped banks can’t underwrite them anymore, the clubs' only option is to slash costs. Experts say teams have to better manage their business to raise income through merchandising or other fees.

"The problem is not the debt, but the trend,” says Alberto Palomar, a law professor in Universidad Carlos III de Madrid who specializes in sports law, referring to shrinking income as a result of the economic crisis. “It’s a problem of how the system is structured.”

“The challenge is to enforce fair play in Spanish sports, meaning a system to supervise finances that avoid situations like the current crisis,” Dr. Palomar says.

The economic model is also overly dependent on revenue from selling television rights, which is plummeting, as are revenues from stadium attendance, merchandising, and sponsorships.

Furthermore, television rights are negotiated separately, meaning Barcelona and Madrid keep more than half of the proceeds. That leaves much less for smaller teams, which for years have demanded collective rights and more even distribution in the fashion of Britain's Premier League, which has been more successful from a business standpoint. 

The government also mandates that teams cede the rights of game highlights to media outlets, as well as one match per week, which together could be worth almost the equivalent to what the government is demanding clubs to cut annually, notes Palomar.

On-the-field impact

The outcome of the unsustainable equation is inescapable, though. The star league is losing its luster.

Most teams are renegotiating their debts with the governments and private creditors. Some teams won’t even survive. Several small clubs have shut down for good, like Salamanca, but even some big teams are at risk of disappearing, like Deportivo La Coruña.

Players’ salaries consume on average more than three quarters of revenue of the 20 elite teams, but disproportionally. The best managed teams like Barcelona and Real Madrid spend less than 65 percent, but even they have been forced to cut back.

Barcelona is selling many of its most talented players – including perhaps the most promising of Spain’s new generation of players, Thiago Alcántara, for 25 million euros. The team sold seven players, and has so far only signed on Brazilian superstar Neymar – and that only after splitting the 57 million euro bill with three other investors.

Real Madrid, known for its record payments, is also being more conservative. It has sold five players and bought another four, and with some hiring still expected, the team will not come even close to the more than 216 million euros in net player transfers that it tallied in 2009.

Atletico Madrid sold its breakout star Radamel Falcao for 60 million euros, but it remains one of the most financially exposed teams. Valencia, Sevilla, and Real Betis sold most of their top stars and replaced them with players mostly from lower division teams as they renegotiate their debts.

Sixth-place Malaga was banned from European tournaments for not paying back debts, as was next-in-line Rayo Vallecano. Malaga players last year earned in total more twice the total team revenue.

In all, around 80 players have left Spain this year, 31 of them to England's Premier League. Spaniards grudgingly made peace with the fact that from now on, most teams will be severely diminished versions of what made Spain’s soccer a sensation.

“Fans,” says Dr. Pujol, "are aware of a change of paradigm."