Germany's League Of Limping Football Teams

Many clubs are hurting financially, and Borussia could go under

These have been tough times for fans of Borussia Dortmund, who have watched the onetime international football powerhouse sink to 11th place among the 18 teams in the Bundesliga, Germany's top league. But it's Borussia investors who are really crying into their plastic cups of Pils. Shares in Germany's only publicly listed football club are trading for just $3.46, 76% below its offering price in 2000.

It gets worse. In February the team's corporate managers reported a loss of $74 million on sales of $54 million for its fiscal first half. The team, which paid too much for players who failed to perform, like forward Marcio Amoroso, is desperately trying to avoid insolvency. Creditors have temporarily suspended interest payments, and management has pledged to cut 15% from the player budget.

Borussia Dortmund is a basket case, but it's hardly the only troubled team in Germany, which is scheduled to host soccer's World Cup in a year. Just 19 of 36 first- and second-league teams are profitable, according to the German Football League (DFL). Worst hit are the teams that don't qualify for the UEFA Champions League or other international contests, which bring millions in TV revenue. "For the teams that don't play internationally, it's hard to break even," says Bernd Schiphorst, president of Berlin's Hertha BSC club, which lost $7.6 million on sales of $65 million for the latest fiscal year.

Borussia's problems are causing shock waves in financial circles. The most recent example came on Mar. 14 at a hastily called meeting of shareholders in Molsiris, a real estate fund managed by Commerzbank (CRZBY ) that owns Borussia's stadium under a sale-leaseback agreement. Fearing that Borussia could not pay its rent, Molsiris shareholders agreed to a plan that will cut the team's payments.

Borussia's situation also looks tricky for hedge-fund manager Florian Homm, a German who operates from the Spanish island of Majorca. Homm's FM Fund Management Ltd. bought a 26% stake in the Borussia corporation last year. Homm could make money if Borussia recovers, but insolvency would be a disaster for equity investors.

The Borussia crisis is having a sobering effect as well on international investment in European football. It's unlikely that more teams will go public anytime soon. "I hope it happens again, but there has been an awful lot of scorched earth," says Peter Thilo Hasler, an analyst at Munich bank HVB Group who follows the football industry. In addition, institutional investors are hesitating to buy football bonds. "Dortmund has put a black cloud over the whole industry," says Stephen L. Schechter, owner of London-based Schechter & Co., which helps European teams issue debt.


Under pressure to polish the sport's image before World Cup comes to 12 German cities beginning in June, 2006, the DFL is leaning on teams to clean up their finances. Teams faced a Mar. 15 deadline to present detailed information. In the worst case, the DFL can withhold licenses from teams that lack a credible plan for becoming profitable. More likely, it will impose conditions on troubled teams, such as obliging them to trade high-priced players who may account for half of a team's operating costs.

The sorry financial state of pro football, which affects clubs in Spain and Italy as well, adds impetus to efforts to bring more financial discipline to the sport. Managers such as Hertha's Schiphorst are pushing the Union of European Football Assns. to impose tighter financial accountability on teams and prevent abuses such as hidden government subsidies. That could help restore sanity to player salaries. Financiers such as Schechter, who says he remains ready to help Borussia work out its $121 million debt, are demanding that teams replace top managers or make other changes in return for access to capital.

So far, German fans haven't lost faith, even in Dortmund, which continues to sell out its 69,000-seat stadium. For good reason: European soccer remains the best in the world. It's management that needs to improve its game.

By Jack Ewing in Frankfurt

    Before it's here, it's on the Bloomberg Terminal.