March 15 (Bloomberg) -- As Sporting Lisbon prepares to defend its Europa League lead against Manchester City, the close contest on the soccer field is disguising the divide off it.
An auditor’s report declared last month the Portuguese club that produced stars such as Cristiano Ronaldo as “technically bankrupt.” President Luiz Godinho Lopes said in an interview this week he’s looking for an investor. After prevailing 1-0 at home last week in the first leg, the Lions will line up in northwest England tonight against a Manchester team of millionaires funded by its Abu Dhabi owners.
The European debt crisis and austerity measures designed to tackle it are a double-whammy for soccer clubs. Those without rich benefactors borrowed over the last decade to upgrade stadiums, buy players and pay them competitive salaries. Now they are saddled with loans they can’t refinance while spending cuts hit the pockets of fans buying tickets and replica shirts.
“This is a sector that is being affected by the credit crisis,” Borja Garcia-Garcia, a professor at the School of Sport at Loughborough University in central England, said in an interview. “The problem with football is that money buys success, so there is a strong correlation between money spent in wages and direct titles won.”
Manchester City, bought by Abu Dhabi United Group in September 2008, is among Europe’s 20 richest clubs with 169.6 million euros ($222.4 million) in revenue last season, according to a study by consultants Deloitte.
After spending most of the decade before then fighting to keep top players, being relegated and changing owner, it’s currently vying with local, more successful rival Manchester United for its first Premier League title. City won the F.A. Cup last season and qualified for Europe’s elite Champions League cup competition before being knocked out and entering the second-tier Europa League.
Sporting, which has lived in the shadow of Lisbon rival Benfica, won the most recent of its 18 Portuguese titles in 2002 and the cup in 2008. It qualified for the Europa League by finishing third in Portugal last season.
The club lost money in 12 of the last 13 years, with debt reaching 375 million euros, an internal audit last month showed. It invested 183 million euros in its stadium and attached sports complexes between 1998 and 2010, the report said.
The 106-year-old Lisbon club is looking for an investor to ensure it has enough funds to make it through this season and next, said Godinho Lopes, who traveled to the oil-producing former Portuguese colony of Angola this year. He’s counting on the club’s youth academy to attract money, he said.
Shares in Sporting rose 2.3 percent at 2:38 p.m. to 0.44 euros in Lisbon trading, the biggest intraday advance since March 2, giving the company a market value of 9.2 million euros.
“We are looking for a partner that recognizes Sporting’s ability to develop great players and wants to develop this concept with us,” he said via mobile phone.
Portugal is one of three euro countries, along with Greece and Ireland, to seek a financial bailout from the European Union and International Monetary Fund over the past year.
To make things worse for Portuguese clubs, the government is raising taxes and curbing spending to comply with the terms of its 78-billion-euro bailout requested last year.
“Soccer fans are not immune to these austerity measures and that could weigh on ticket sales at clubs like Sporting,” said Joao Duque, president of the Higher Institute of Economy and Management in Lisbon.
Sporting, like other debt-laden European soccer teams without rich backers, will have to find alternative sources of funding as the credit crisis in Europe prompts banks to cut back on loans, Garcia-Garcia, the academic, said.
“Banks are not providing loans to soccer clubs unless they are Real Madrid or are profitable,” Garcia said. “But most clubs aren’t profitable.”
In Spain, four of the top 20 clubs are under creditor protection from courts because they can’t pay their bills and are at risk of going bankrupt. Valencia, the third-ranked Spanish club, had to halt construction of a new stadium for more than two years after running out of money, the club said.
In the U.K., Rangers Football Club, the Scottish champion, went into administration last month amid a tax probe, while Portsmouth, winner of England’s F.A. Cup in 2008, is seeking a rescue after its former Russian owner was charged in Lithuania with fraud and embezzlement he denies.
A series of losses have left Sporting standing in fourth place in the Portuguese league, 12 points behind leaders FC Porto and 11 points behind Benfica. The club is starting a discount campaign next month to increase the number club members and revenue from ticket sales at its 50,000 capacity stadium, initially upgraded in 2003 ahead of the European Championships hosted in Portugal the following year.
Manchester United bought Ronaldo for 12.2 million pounds ($19.9 million) in 2003 after playing an exhibition match with Sporting to inaugurate the arena. Six years later, the English club sold the Portuguese player to Real Madrid for a soccer record fee of 80 million pounds, according to the Spanish club.
“The academy is the key to attract a foreign investor,” Jose Maria Gay, an accountancy professor at Barcelona University, said in a telephone interview.
Today, Ronaldo is Spain’s top goal scorer and could be worth enough to pay off the Lisbon club’s debt several times over, said Maria Gay. Sporting’s soccer academy, located in the town of Alcochete, on the southern bank of the river Tagus, is also famous for developing players like Luis Figo, Paulo Futre, Quaresma and more recently Nani of Manchester United.
“It’s sad to see my club going through such a difficult situation,” said Jose de Sousa Cintra, who served as president of Sporting between 1989 and 1995. “But I’m sure an investor will realize the academy’s potential and invest soon.”
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