Net Revenue

A new book on how soccer became one of the world’s purest markets
Illustration: Toni Halonen

Soccer has a long history in the U.S. as a socialist bogeyman. Americans resisted the game for decades because it was a foreign invention. Even now, when the World Cup comes around or FIFA erupts in scandal, conservatives warn that the sport is un-American, as if any game that allows for scoreless ties and forbids the use of hands is worthy of the Politburo. “Individual achievement is not a big factor in soccer,” Ann Coulter wrote last summer. “The blame is dispersed, and almost no one scores anyway.”

It makes sense that Coulter sees soccer as a threat: The game pulls its stateside audience from the young, from Hispanics, and from city dwellers—groups that helped elect President Obama twice. Soccer’s growing popularity is a sign of demographic shifts that don’t favor the Republican Party. Yet the idea of the sport as a socialist cesspool would seem strange to fans in Europe, where Cristiano Ronaldo, striker for the Spanish club Real Madrid, makes $400,000 a week and regularly sends a stylist to brush the hair of his statue at Madrid’s wax museum.

For those unacquainted with Ronaldo, Real Madrid, and the ways soccer teams are built, Stefan Szymanski’s Money and Soccer is a good primer. The author shows how Europe’s top leagues are among the world’s best expressions of market capitalism. Over the past two decades in the English Premier League, for instance, the team that paid the most in player wages has won nine titles; the team with the second-highest wage bill has won seven. And so on.

Money and Soccer is a follow-up to Soccernomics, a 2009 best-seller that Szymanski, a professor of sports management at the University of Michigan, co-wrote with British journalist Simon Kuper. That book deployed economics to explain things like the fate of nations in the World Cup and the optimal penalty kick strategy. Like Freakonomics, it combined social science with a tireless insistence that conventional wisdom is wrong.

Szymanski’s new book reads more like a series of very good college lectures. Using tables, scatter-plots, and teacherly prose, he lays out how markets rule. “There are two fundamental statistical relationships in soccer: First, the more you spend on players, the more successful you will be on the field,” he writes. “The second relationship is as simple as the first: More successful teams on the pitch generate more revenue.” Money brings talent. Talent brings wins. Wins bring money. The loop is so tight, it scarcely leaves room for profit. Despite an estimated $27 billion in annual revenue for clubs across Europe, most clubs operate on a slim margin.

In European soccer, unlike major U.S. sports leagues, there are no restrictions on player pay—no salary caps, no wage scales, and no amateur drafts. Teams compete with local rivals for market share. And at the end of each season, the bottom teams are kicked out of leagues and replaced by the top finishers from the league below. America’s NFL, by comparison, looks like a cartel: Its 32 owners fix labor costs, divvy up proceeds, and enjoy regional monopolies.

The one way for a European soccer club to move up the ranks, Szymanski says, is to spend money it doesn’t have. Some clubs borrow heavily to try to make the leap, then go belly up. Others are blessed with megarich owners willing to spend unholy amounts to win trophies. These “sugar daddies” usually become the objects of populist scorn among fans.

The top two clubs in the English Premier League this season are Chelsea and Manchester City. Their owners are a billionaire Russian oligarch and a billionaire sheik from the United Arab Emirates. The hot soccer topic right now is Financial Fair Play Regulations, a proposal that would force teams to spend only what they make. As Szymanski sees it, this is about restraining the naked pursuit of sporting glory by global capitalist overlords. So far, it’s not working.

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