Legal Requirements and Problems to Create a Financial Balance between Professional Sport Clubs in the German Bundesliga

Compared to the Major Leagues in the United States


Master's Thesis, 2012
89 Pages, Grade: A-

Excerpt

Table of Contents

Abbreviations

Appendix

Bibliography

I. Introduction
A. Significance of the Major Sports
B. Structure of the Leagues
1. The Leagues Sport System
2. Legal System
a) United States
b) Germany and Europe

II. Competitive and Financial Balance
A. Competitive Balance
B. Financial Balance

III. Legal Restrictions
A. Description of the Rules
1. Sharing Revenues
a) United States
b) Germany and Europe
2. Free Agency and Restricted Free Agency
a) United States
b) Germany and Europe
3. Rules for Players Changing Teams
a) United States
b) Germany and Europe
4. Trades
5. Salary Cap, Maximum and Minimum Salary
a) United States
b) Germany and Europe
B. Do the Rules Achieve the Goal of Financial and Competitive Balance?
a) Luxury Tax
b) Salary Cap
C. Salary Cap in Europe: Financial Fair Play Rules
1. Purpose and Scope of the Rules
a) Purpose
b) Scope
2. Requirements

IV. Legal Challenge of the Rules
A. United States
B. Financial Fair Play Rules Against European Law?
1. Applying E.U. Law to Sport
2. Financial Fair Play and Article 101 TFEU
a) UEFA as an Undertaking
b) Affect Trade between Member States
c) Distortion or Competition
d) Justification Wouters
aa) Existence of a Legitimate Aim
bb) Less Restrictive Measure
Alternative 1: Reducing Club Compensation
Alternative 2: Revenue Sharing
Alternative 3: Ban of Trades
Alternative 4: Luxury Tax
Alternative 5: Salary Cap
e) Justification Art. 101 (3) TFEU
3. Financial Fair Play and the Obstacle to Free Movement
a) Restriction Free Movement of Workers
b) Justification

V. Conclusion: Alternatives for the Bundesliga and the Major Leagues in the United States
A. Bundesliga
1. Collective Bargaining Agreement for European Soccer?
2. Alternative: Salary Cap
3. Combination Shared Revenue, Luxury Tax and Ban of Trades
B. Alternative for the Major Sports in the United States

VI. Summery

Table of Cases

Albany Int'l BV v. Stichting Bedrijfspensioenfonds Textielindustrie, Case C-67/96, 1999, E.C.R. I-5751.

American Needle, Inc. v. NFL, 130 S.Ct. 2201 (2010).

Beguilin Import v . Gl Import-Export, Case 22/71, 1971 E.C.R. 949. Brady v. National Football League, 644 F.3d 661 (2011). Brown v. Pro Football, Inc., 518 U.S. 231 (1996).

Centrafarm BV v. Sterling Drug, Inc., Case 15/74, 1974 E.C.R. 1183. Clarett v. National Football League, 369 F.3d 124 (2004).

Deliege v. Ligue Francophone de Judo et Disciplines Associees ASBL, Case C-51/96, 2000, E.C.R I-2549.

Deltafina SpA v. Commission, Case T-29/05, 2010, not yet reported in E.C.R. 103. Dona v. Mantero, Case 13/76, 1976 E.C.R. 1333.

Federal Baseball Club v. National League, 259 U.S. 200 (1922). Flood v. Kuhn, 407 U.S. 258 (1972).

Gebhard v. Consiglio dell'Ordine degli Avvocati e Procuratori di Milano, 1995, E.C.R. I- 4165.

Henderson Broadcasting Corp. v. Houston Sports Association, Inc., 541 F. Supp. 263 (1982). Hofner & Elser v. Macroton GmbH, Case C-41/1990, 1991, E.C.R. 1-1979. Lehtonen v. Federation Royale Belge des Societes de Basketball ASBL, 2000, Case C-176/96, E.C.R. I-2681.

Lawrie-Blum v. Land Baden-Wurttemberg, Case 66/85, 1986, E.C.R. 2121.

Los Angeles Memorial Coliseum Comm ’ n v. National Football League, 726 F.2d 1381 (9th Circ.1984).

Mackey v. NFL, 543 F.2d 606, 614-15 (8th Cir. 1976).

Meca-Medina & Majcen v. Comm'n of the European Communities, Case C-519/04P, 2006, E.C.R. I-6991.

Olympique Lyonnaise v. Bernard & Newcastle Utd., Case C-325/08, 2010, not yet reported in E.C.R.

Piau v. Comm'n of the European Communities, 2005, E.C.R. II-209. Piazza v. Major League Baseball, 831 F. Supp. 420 (1993). Powell v. National Football League, 930 F.2d 1293 (1989). Powell v. National Football League II, 764 F.Supp. 1351 (1991).

Societe Technique Miniere v. Maschinenbau Ulm GmbH, Case 56/65, 1966, E.C.R. 235. URBSFA v. Bosman, Case C-415/93, 1995, E.C.R. I-4921.

Viho Europe BV v. Comm'n, Case C-73/95,1996, E.C.R. I-5457. Volk v. Vervaecke, Case 5/69, 1969, E.C.R. 295.

Walrave v. Union Cycliste Internationale, Case 36/74,1974, E.C.R. 1405.

Wouters v. Algemene Raad van de Nederlandse Order van Advocaten, Case C-309/99, 2002 E.C.R. I-577.

Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

I. Introduction

There is no question that the most popular sport in the world in terms of participation, viewership and business is soccer.1 Although soccer gets more popular today in the United States (US), the immense influence of the major sports football (NFL), baseball (MBA), basketball (NBA) and hockey (NHL) makes it almost impossible for soccer to compete in the US.

The soccer industry generates revenues running into the tens of billions per year; the Top 20 clubs alone generated around 4,4 billion Euro ($5,37 billion)2 in the 2010/11 season.3 Despite increasingly high volumes of revenue, some European soccer clubs are in large amounts of debt. For example, Manchester United, the most valuable soccer club in the world at $1.86 billion, has debts of $756 million as a result of the 2005 takeover by American businessman Malcolm Glazer.4 To regulate the financial problems the Union of European Football Association (UEFA) invented the Financial Fair Play rules, which basically require that a team does not spend more than it earns.

Besides the lack of financial stability there is also a competitive and financial imbalance between the clubs. The major US leagues created devices to prevent competitive and financial imbalance by restricting players, player agents and the clubs through salary caps, revenue sharing or a luxury tax. This thesis will analyze, if the devices are successful and if they would work in Germany and Europe as well.

After an overview of the different structures of the leagues, it will be examined if there is competitive and financial balance in the leagues and after an overview of the devices, if the introduction of the devices really creates financial and competitive balance. It will also be reviewed if the rules are legally justified with a particular test of the Financial Fair Play Rules. At the end it will be discussed how the devices can be enhanced.

A. Significance of the Major Sports

Sports leagues have become large revenue generators over the last years. As the value of sports leagues and teams has increased, their connections to local economies have strengthened and the performance of the local team has become an important economic force in the community as well as a source of pride for fans.

Soccer as the most popular sport in Germany generates more than 50% of the outgoings of the German people in the sports market.5 It generates a value of more than 5 billion Euro ($6,1 billion) a year, which is 0,2% of the gross domestic product of Germany6 and the first and second Bundesliga alone generate almost 41,000 jobs.7 The Bundesliga has an average audience of 42,000 per game (second highest in the world after the NFL) and it is the only major European soccer league where its teams collectively make profit.8

The future seems even more successful. 2010/2011 the Bundesliga was able to report record revenues for the seventh time in succession to 1,94 billion a year ($2,37 billion / second highest in Europe after the Premier League in England and sixth highest in the world, after England and the four major US sports).9

26,76% of all revenues (519,63 million Euro/ $633,78 million) alone is generated by the television revenues and will increase due to the new television rights to 673 million Euro ($820,84 million) in 2016.10

Even higher revenues are generated by the big three major US sports. 2010/2011 the NFL generated $8,4 billion11, MLB collected $6,1 billion12 and the NBA $3,9 billion13. All franchises of the three leagues together have a value of $60,619 billion (NFL $33,1 / MLB $15,6/NBA $11,7) and generate income of $1,65 billion (NFL $0,979 / MLB $0,494 /NBA $0,174).14 Also most of all clubs (78%) generate positive income (NFL 93%, MLB 90%, NBA just 50%).15

B. Structure of the Leagues

1. The Leagues Sports System

Professional sports leagues in the US consist of 30 to 32 teams (NFL 32, MBL and NBA 30), which compete in a “closed” league to win championships, which means that teams in general remain the same. Essentially, the professional leagues are joint ventures among the constituent teams and on-field competition occurs alongside off-field cooperation in order to promote teams' mutual economic interests.16 In contrast to Europe, schools and colleges play an important role in the organization of sport and there is a sharp distinction between amateur and professional sport.17 College leagues play an important role as clubs draft the talents to the leagues dependent on their last year’s success. Although college sports are a business itself, the thesis will only focus on the professional leagues since they do not compete with college leagues.

The German and European systems are different. They use a “promotion and relegation” system. Successful teams in a “second division” can be promoted to a “first division”, while unsuccessful first division teams relegate to the lower tier. In contrast to the US, schools and colleges do not play an important role in the organization of sport and there is no sharp distinction between amateur and professional sport.18 Main goal is to win the national championship in the first division (1.Bundesliga), reach a place which permits to play international or in lower tier leagues to promote to a higher division. There is also a national cup (DFB-Cup) where teams (All 1. and 2.Bundesliga teams, the first four of the third Division, twenty-one state cup winners, three teams of the national associations with the most teams) play against each other in a knockout system.19 Other than the system in the US, international competition is a central part of the soccer system and business in Europe. Dependent of the ranking of the league a team is allowed to compete in the UEFA Champions League and the UEFA Europa League, where teams compete in a “group phase” and later in a knockout system, besides playing the regular games in the national leagues. The teams per nation depend on the so called “UEFA coefficient”20 which is in general dependent on the success of the national league during the last five years (for example: 2012/2013 Germany has four Champions League places and three Europa League Places). The other European leagues work similar, except that most leagues consist of twenty instead of eighteen teams.

2. The Leagues Legal System

a) United States

The NFL, MLB and NBA and their member teams are private entities and operate with a considerable degree of autonomy.21 Their internal rules and regulations are generally immune from governmental scrutiny.22 Sports leagues control the members of teams, their locations, and the numbers of players on a team. They also mandate the sharing of certain revenues, league-wide merchandising, and a unified negotiation strategy with players’ unions. Thus, cooperation exists - as a condition of membership in the league.23

Individuals, corporations, limited partnerships and limited liability companies are permitted ownership of clubs in most traditional sports leagues.24 But there are certain limits for the “home territory” of a team like in the NFL to a seventy-five-mile radius, with exceptions, such as New York Metropolitan area and San Francisco Bay Area (which each have two teams).25 It is also possible to create a new franchise or sell a franchise which both requires a positive vote of three quarters of the owners (NFL26 and NBA27, MLB ¾ in expanding league, ½ in nonexpanding league28 ).

NFL management authority derives from an executive committee consistent of one representative (often the owner) of each club and the commissioner, elected by the executive committee.29 The commissioners in the major leagues possess disciplinary powers, dispute resolution authority, including the power to appoint other officers and committees.30 He has executive power unless the Collective Bargaining Agreement (CBA) with the NFL Players’ Association renders specific powers to other authorities and also has the power to settle disputes between players and teams.31 Other than in the NFL, in the NBA commissioner’s disciplinary actions for off-the-court conduct are reviewable by a neutral arbitrator.32 On paper, it gives the commissioner the right to be a judge, jury, and in some cases appeals court, in investigating alleged transgressions among owners, players, officials, and administrators.33 More recently, however, the unilateral power of the commissioners to punish players has been limited, primarily because of mandatory grievance arbitration procedures found in collective bargaining agreements of some, but not all, of the major leagues.34 Because the owners elect commissioners, the commissioners frequently (although not always) serve as representatives of ownership interest.35 Most rules are made through CBAs between players unions and the members of the clubs.

b) Germany and Europe

Unlike the professional leagues in the US, which act as both governing body and professional league, the European soccer system has both and the league is subservient to the policies crafted by the governing bodies. And other than in the major leagues the most important restrictions are not in a CBA, but in regulation and rules of the European Union or of the respective country. Other than the US major leagues it is prohibited for private investors to fully take over control of German soccer clubs, but allows some degree of outside investment. The rule states that 51% of the members' associations must retain the majority shareholding of the clubs.36 Private investors therefore, cannot hold more than 49% shares of a club. The “50+1” Rule is a German rule and only applicable to German soccer. There is no similar rule for the other big soccer leagues in England, Spain or Italy, which puts German clubs in a weaker financial situation.

The 36 clubs and organizations of the 1. and 2. Bundesliga are permitted to be organized in a variety of different legal entities as long as they satisfy the “50+1” rule.37 The traditional organization of the clubs is the “eingetragener Verein (e.V.)”. The “e.V.” provides for restricted legal liability for its members and is attractive to a more informal grouping of individuals because it has no capital requirements, no accounts publication requirements, and no fixed organizational structure other than the requirement of a board.38 It provides a strong voice for the member-fans who ultimately control the club. Most of the clubs moved to other structures like the “Aktiengesellschaft” (AG), which is the German equivalent of the public limited company or American corporation. The Bundesliga rules prevent the club from constituting itself as an “AG” owned entirely by an outside shareholder. For example Bayern Munich's 130,000 members pay an annual fee as members of “Bayern Munich e.V.”. The members then elect their president and by virtue of its 87.4% stake in Bayern Munich AG, which owns the professional part of the club, the “e.V.” complies with the Bundesliga’s “50+1” control requirement. Adidas and Audi own the remaining stake in the AG. Therefore, the club can raise capital easily through the AG structure, provided that the e.V. retains a controlling stake.

The Bundesliga also allows the „Gesellschaft mit beschränkter Haftung“ (GmbH) provided that the club itself owns a majority of the GmbH.39 The GmbH is the German equivalent of the American limited liability company. The GmbH is attractive to smaller entities because it provides a great deal of flexibility in the company's structure but also limits the liability of the shareholders to the amount of their contribution to the GmbH.40 The most prominent but also discussed and criticized examples are Bayer Leverkusen and VfL Wolfsburg. Bayer Leverkusen is a wholly owned subsidiary of the chemical giant Bayer AG while VfL Wolfsburg is owned by Volkswagen. For the two teams an exemption of the 50+1 rule applies, because the investor supported the club more than 20 years.41

Another corporate form, which is permitted in the Bundesliga is the “Kommanditgesellschaft auf Aktien (KGaA)”. The KGaA is a hybrid form of partnership corporation that combines a general partner with shareholders in a corporation and is ideal for a corporation wishing to retain a great deal of control while still being able to raise capital. The “KGaA” general partner retains control, and is subject to unlimited personal liability. German law permits this to be mitigated through the use of an AG or a GmbH as a general partner (which effectively limits personal liability by having a corporate general partner with only a small capital investment). An example of the KGaA structure is Borussia Dortmund. The club, BVB Borussia Dortmund e.V., satisfies the 50+1 rule by maintaining control of the general partner, Borussia Dortmund GmbH, while selling shares in the KGaA, which is traded on the stock exchange. The GmbH itself is solely owned by the e.V.

All clubs and organizations are members of the League Association (Ligaverband), which is an orderly member of the German Football Association (DFB). The Ligaverband represents the clubs towards the DFB and organizes the games of the 1. and 2. Bundesliga together with the DFB under control of the international statutes and regulations of the Union of European Football Associations (UEFA) and the International Federation of Association Football (FIFA).42 With the incorporation of the Ligaverband, the DFB alienated its rights to the Ligaverband, so that the Ligaverband executes the most important tasks.43 Its business operations are alienated to a Ligaverband’s subsidiary the German Football League (DFL), that as a representative of participants in the championships is responsible for granting licenses.44 The requirements for the license are listed in the “Lizensierungsordnung” and include financial, structural and personal requirements, which are checked by the DFL for each season.45 Additionally a UEFA license was required to participate in European competitions, which today is replaced by the Financial Fair Play rules.

The main task of the DFL is the operation of the games and the marketing of the 1. and 2. Bundesliga. The DFL is bound to the Constitutions of the Ligaverband and the DFB.46 The DFB is responsible for Referees, Coaching and sports court’s jurisdiction and operates the DFB-Cup and the tier leagues under the 1. and 2. Bundesliga.47 The FIFA is the highest soccer association of the world and its main tasks are developing soccer and their rules and the operating of the World Cup.48 The UEFA’s task is the operating of the UEFA Euro, UEFA Champions League and UEFA Europa League.49 The DFB is member of the FIFA and UEFA and because all clubs are members of the Ligaverband, they are bound to all international Statutes and rules of the FIFA and UEFA.50

The structures in the other European Leagues differ from the German model. In Spain, fans that pay a modest fee are given the opportunity to exercise some measure of control over club governance (“Socio” Model).51 A member's trustee serves as an independent advisor and defender of the about 170.000 socio's rights and the members vote for the President and Board of Directors of the club.52 The president himself invests in the club. The members provide a substantial amount of financial support to the club through their member dues.53 For example FC Barcelona is committed to ownership by its fans and its legal structure does not permit equity in the club to be sold.54 If the club confronts a future cash crisis, the club is limited in the ways that it can raise cash and this problem is tempered by the fact that Spanish banks have been extremely willing to lend money to other soccer clubs, as well as FC Barcelona itself.55 A bank that is a creditor of FC Barcelona (or any other Spanish club) would be extremely unwilling to be seen as the bank that forced the dissolution of the club.56

Despite operating the most popular league worldwide and being the number one of the UEFA coefficient England faced serious financial problems. For example 79% of English clubs lost money in the 2008/09 season, 2010 one team (Portsmouth) went bankrupt. The typical English club is constituted as a public limited company, which is the equivalent of the American corporation. Because the 50+1 rule just applies to the German Bundesliga, outside investors play a huge role in England.

Prototype is the FC Chelsea with its Russian investor Roman Abramowitsch, who has funded about 726 million pounds ($1,1 billion) in interest free loans to the club.57 Another example is Manchester City, which is controlled by the Abu Dhabi United Group. The cost of acquisition of Manchester United by American businessman Malcolm Glazer was approximately 831 million pounds ($1,3 billion). Glazer transferred loans amounting to 559 million pounds ($862 million) of the acquisition cost to the club. The debt was both in bank loans as well as “payment in kind” loans, which carried an initial interest rate of 14.25%.58 Unlike a normal loan where interest is paid regularly, the high interest on the “payment in kind” loans continues to accumulate until the time of repayment.59 As a result, Manchester United went from a financially successful club to one that was heavily laden with debt.60

II. Competitive and Financial Balance

A. Competitive Balance

A league needs to have competitive balance to attract fans and sponsors to support the sport. There are a number of different types to measure competitive balance.61 Since they are based on the US major sports and their structures and the purpose of the study is the comparison to the structurally different Bundesliga and European Leagues, not every method is appropriate. A generally meaningful and easy way to measure is to look to the basic aim of a sports league: to win championships. It is also useful to evaluate the distribution of titles during the last years. A great variety of different clubs being able to win championships indicates competitive balance.

The percentage of teams, which won the championship during the last nineteen years, does not highly distinguish the major US leagues from the Bundesliga (NFL 40,64%, MLB 40 %, Bundesliga 33,33%, NBA 26,67%, Average Spain/Italy/England 25%).62 But the percentage of the three teams, which won the most championships (Top 3), shows that the US leagues are more competitive than the Bundesliga.63 In the Bundesliga 84,21% of the national championships in the last nineteen years were won by the Top 3 teams (Average Spain/Italy/England is even higher 87,68%), whereas the percentage of the Top 3 teams in the major US sports is significantly lower (NBA 57,89%, MLB 47,37%, NFL 36,84%).64

There were just six different teams in the Bundesliga, which won the championship in the last nineteen years.65 Two teams alone won 79% of all championships during the last nineteen years (Bayern Munich ten and Borussia Dortmund five championships).66 If we consider the “smaller” countries, most of them have also traditionally been dominated by at most two or three clubs (for example, Celtic and Rangers in Scotland; Ajax, PSV and Feyenoord in the Netherlands; Sporting Lisbon, Benfica and Porto in Portugal).

Also there is huge imbalance on the European soccer level. 82,89% of all national championships in the big four leagues (England, Germany, Spain, Italy) were won by the ten teams which won the most championships in the four big leagues (Top 10 teams).67 Summarized 83,16% of all Champions League titles and National Championships in the big four leagues were obtained by the Top 10 teams (Top 5 Teams won 54,74% of all titles alone).68

These statistics show that titles are obtained by a small percentage of clubs. On the other hand it is hard to win titles for clubs not in the Top 10 of European Clubs. At the European competition level it is even harder. Only 15% of all titles during the last nineteen years were won by teams that are not in the Top 10 of European clubs (FC Porto, FC Liverpool and Ajax Amsterdam were the only of these clubs which won a title). So there is huge competitive imbalance in the Bundesliga and the European Soccer. It is also conspicuous that the Spanish, English and Italian League alone won 15 of 19 titles in the last years 19 years, whereas the financially wealthier Bundesliga only won two titles.

In the major US leagues in contrast it is easier for the “non Top 3 teams” to win championships compared to the Bundesliga. The major US leagues are also more competitive, since the percentage of teams which won championships are higher (except NBA).

Within the US leagues the NFL is the most competitive balanced league, since the distribution of championships is high (40,64%) compared to the NBA (26,67%).69 Although the MLB shows similar statistics regarding the distribution of championships (40%), it shows worse numbers regarding competitive balance at the percentage of the Top 3 teams (47,37%, the NFL has 36,84%).70 The most competitive unbalanced league is the NBA, both regarding the distribution of teams which won championships (26,67%) and the percentage of the Top 3, which won championships (57,89%).71

Therefore there is a huge competitive imbalance in the Bundesliga and European Soccer, as well in the major US leagues with the NFL as the most competitive balanced leagues contrary to the NBA.

B. Financial Balance

Related to the issue of competitive balance is the question whether there is financial balance and if both factors are interdependent.

The first third of teams with the highest revenues in the Leagues (First Third) obtain 44,01% (NBA), 41,55% (MLB) and 39,22% (NFL) of all revenues of the league, compared to the Bundesliga with 57,45%.72

Compared to the US leagues the “Big Teams” in the Bundesliga have more impact. Whereas the numbers of the first third within the three US sports are almost similar, there are bigger differences between the first and the last third. The biggest gap between the first and last third exists for the NBA with 18,76%, followed by the MLB with 14,84%.73 The NFL has the best percentage with only 8,48%, which means that the last 10 teams just generate 8,48% less revenue than the first third.74 The Bundesliga in contrast has a gap difference of 42,42%. Also the gap between the team with the highest and lowest revenue is lower in the US sports (4,61% NBA, 4,63% MLB, 2,27% NFL compared to Bundesliga 14,6%).75 Regarding the financial balance the NFL has better numbers than the MLB and NBA, but the numbers are still better than the results in the Bundesliga.

In the Bundesliga Bayern Munich and Schalke 04 together generate total revenues of 490 million Euro ($598 million), which is more than nine clubs together in the Bundesliga 2010/2011.76 Bayern Munich as the team with the most revenue generates twice as much as the team, which generates the third highest revenue.77

The gap between the 6 clubs with the highest revenue and the 6 clubs with the lowest revenue is very high (First 6 generate 57% of all revenue in the Bundesliga, whereas the last 6 only generate 15,03%).78 The gap between big and small market clubs is even higher in Spain and England. In Spain Barcelona and Real Madrid alone almost generate four times as much revenue as the third club Atletico Madrid.79 Also the big four in England alone (Manchester United, Chelsea, Liverpool, Arsenal) generate almost twice as much as the fifth club.80

The increase of attendance and revenues from the large increases in income guaranteed by the sale of broadcast rights, the large increases in advertising and sponsorship income and a more “commercial approach” to ticket pricing, associated with “gentrification” of soccer club supporters further led to an increase of financial imbalance through the last fifty years.81

There is also a financial gap between the Bundesliga and the Spanish and English League,since the Top 3 teams in Spain generate 1,047 billion Euro (England 867 million Euro), whereas the Top 3 in the Bundesliga “just” generate 663 billion Euro.

Therefore the numbers show that there is higher financial imbalance in the Bundesliga and in the other European Leagues compared to the US leagues.

In could also be concluded that the financial imbalance has an impact to the competitive imbalance. Bayern Munich for example generates twice as much revenue than Borussia Dortmund and also won twice as much championships. The eight teams with the highest revenues are also in the top ten of the teams with the most championships.82 The highest four revenue generating teams (Real Madrid, FC Barcelona, Manchester United and Bayern Munich) alone won 45,36% of all European and National Championships in the Big Four Leagues (Top 10 Teams won 68,42%, Top 20 Teams won 86,32%)83. So teams which were not under the Top 20 generating revenue teams only won 13,68% of all titles. This allows the conclusion that financial balance and impact has influence on the competitive balance in the Bundesliga and European Soccer.

The statistics in the US major leagues show the same result. The higher the revenue gap between the teams in the league, the higher is the percentage of high revenue teams winning the championship. The Top 10 revenue generating teams in the NBA won 73,68% of the championships, whereas the Top 10 Teams in the other leagues “just” won 61,11% (MLB) and 47,37% (NFL).84 The statistic shows that the lower revenue is generated, the smaller is the chance to win championships (e.g. in the NBA no (!) team of the last third of revenue generating teams won a title, NFL 10,53% and MLB 22,22%).85 Therefore, it can be concluded that financial balance has an impact on competitive balance. The most “fair” league seems to be the NFL, followed by the MLB and the last financially and competitively balanced league is the NBA. Almost all statistics show that it is easier in the NBA as a big market team to win a championship than in the other leagues, which is even more unbalanced than the Bundesliga and the European Leagues.

III. Restrictions and Regulation

To determine, why there is more financial and competitive balance within US leagues the legal restrictions can help to find an answer.

A. Description of the Rules

To satisfy a competitive league by creating financial balance between the clubs and to restrain the agents within the US, the CBA’s invented different devices to achieve the goal of a fair and competitive league. All of the major leagues are unionized, which means that each league’s management must negotiate with the players union regarding a CBA that outlines salaries, benefits, and working conditions, but also the sharing of revenues as the source of player salaries. In contrast the European system does not know an equivalent to a CBA and is rather based on rules set by associations like the UEFA, FIFA or DFB.

1. Sharing of Revenues

The basis of a competitive league is a reasonable distribution of revenues. The system of sharing revenues in the US substantially differs from the German and the European Soccer system.

a) United States

The sharing system of revenues is interrelated with the salary cap system because each year the salary cap’s floor and ceiling are set at a percentage of the defined revenue.86 Approximately 60 percent of total revenue in the NFL is generated centrally and distributed evenly among the 32 teams.87 All broadcast TV and radio revenue in the NFL is shared equally among all teams.88 Ticket revenue is split using a slightly different formula: the home team keeps 60 percent of gate receipts and gives 40 percent of receipts to a pool, which is then distributed evenly among the 32 teams.89 Other sources of revenue include home ticket receipts, private boxes, parking, concessions, and local marketing, sponsorships, and media deals.90 These other sources of revenue give teams in bigger markets or with state-of-the-art arenas a significant edge in profitability. The new CBA attempts to remedy that in two ways: First, the league will set aside a percentage of revenues in a stadium fund, which will be used to match teams' investments in their facilities. Second, there will be an additional "luxury tax" levied on high-revenue teams, with the receipts set to be distributed to the lower-revenue clubs.91 The business of the NFL, more so than other leagues, is built not on local revenue, but on sharing centrally generated revenue.

For example, in the current version of the MLB CBA, all teams pay 34 percent of their “net local revenue” (Local revenue less its actual stadium expenses) into a shared fund, which is divided equally among all teams with the difference between each club’s payment into the putative pool and its receipt there from producing the net payment or net receipt for that club.92 Through a second fund, there is more money flow into the league from national “Central Revenue” like broadcasting and licensing agreement, which is allocated from “richer” to “lower-revenue” clubs.93 MLB also has a luxury tax system, which forces teams with high payrolls to pay a dollar-for-dollar penalty, which receipts go into a central MLB fund - the MLB Industry Growth Fund - used for marketing programs.94 The current thresholds for the "luxury tax" on payrolls is $178 million and will remain unchanged in 2013 but will increase to $189 million for 2014, 2015, and 2016.95 The tax rate will be 17.5 percent for teams that exceed the threshold for the first time, and increase to 50 percent for clubs that exceed it for the fourth time or more.96 Rates for clubs that exceed the threshold for the second time are 30 percent and third time are 40 percent.97

The new CBA of the NBA states that all teams have to contribute an annually fixed percentage, roughly 50 percent, of their total annual revenue, minus certain expenses such as arena operating costs, into a revenue sharing pool.98 Each team then receives an allocation equal to the league's average team payroll for that season from the revenue pool. The new plan calls for small-market teams to generate at least 70 percent of the league wide average in total team revenue in order to receive full revenue-sharing benefits. Large-market teams must generate 130 percent of the league wide team revenue average. Should a team fall short of its expected revenue, it must make up the difference in its level of contribution.99

[...]


1 Harald Dolles & Sten Södermann, Sports as a Business - International and Commercial Aspects, 213 (2011). / Note: The words soccer and football both are common. The author uses the word soccer unless a quote, statute or association expressly use the word “football” to distinguish between soccer and American Football.

2 All conversions based on the currency July 12, 2012: 1$ = 0,8199 Euro.

3 Deloitte Football Money League 2012 available at http://www.deloitte.com/assets/Dcom- UnitedKingdom/Local%20Assets/Documents/Industries/Sports%20Business%20Group/uk-sbg-dfml-2012- final.pdf.

4 Natalie L. St. Cyr. Clarke, Note, The Beauty and the Beast: Taming the Ugly Side of the People ’ s Game, 17 Colum. J. Eur. L. 601, 601 (2011).

5 Fabian Grabowsky, Profifußball und Volkswirtschaft - Bühne frei für neue Rekordumsätze, August 5, 2011, http://www.tagesschau.de/wirtschaft/bundesligawirtschaft100.html.

6 Mc Kinsey - Wirtschaftsfaktor Bundesliga, 5 available at http://www.bundesliga.de/media/native/dfl/dfl_bl_studie_mckinsey_gesamt_final.pdf.

7 Bundesligareport 2012, 20 available at http://static.bundesliga.de/media/native/autosync/dfl_bl_wirtschaftssituation_2012_01-12_gb_72dpi.pdf.

8 Id. at 8.

9 Id. at 1.

10 Id. at 20; DFL, Rekord-Erlöse für die Bundesliga: 2,5 Milliarden Euro durch neue Medienverträge, April 17, 2012, http://www.bundesliga.de/de/liga/news/2011/0000210138.php.

11 Kurt Badenhausen, The NFL ’ s Most Valuable Teams - Complete Coverage: The Business Of The NFL, September 7, 2011, http://www.forbes.com/lists/2011/30/nfl-valuations-11_rank.html.

12 Kurt Badenhausen, Yankees Soar, Mets Plunge On List of Baseball's Most Valuable Teams - More From Forbes On The Business Of The MLB, March 23, 2011 , http://www.forbes.com/lists/2011/33/baseball- valuations-11_rank.html.

13 Kurt Badenhausen, L.A. Lakers Top 2012 List Of The NBA ’ s Most Valuable Teams - Complete Coverage: The Business of Basketball, January 25, 2012, http://www.forbes.com/nba-valuations/list/.

14 Based on: supra note 11-13.

15 Based on: supra note 11-13.

16 Clarke, supra note 4, at 604

17 Id. at 603.

18 Id. at 604; James A.R. Nafziger, A Comparison of the European and North American Models of Sports Organisation, in: Simon Gardiner et. al, EU, Sport, Law and Policy: Regulation, Re-Regulation and Representation 35, 41 (2009).

19 DFB, Modus - Teilnehmer, http://www.dfb.de/?id=160547 (last visited at July 13, 2012).

20 UEFA Rankings, Country coefficients 2011/2012, http://www.uefa.com/memberassociations/uefarankings/country/index.html (last visited at July 13, 2012).

21 Mark Conrad, The Business of Sports A Primer for Sports Journalists 12 (2d ed. 2011).

22 Id.

23 Id.

24 Id. at 14.

25 NFL Const. Art. IV, § 1.

26 NFL Const. Art. III, § 1.

27 Conrad, supra note 21, at 16.

28 Conrad, supra note 21, at 18.

29 NFL Const. Art. VIII.

30 NFL Const. Art. III, §§ 1-9.

31 NFL Const. Art. VIII.

32 NBA CBA Art. XXXI, § 8.

33 Conrad, supra note 21, at 20.

34 Id.

35 Id. at 21.

36 DFB Const. § 16c (2).

37 Listed at: DFL, Adressen der Vereine und Kapitalgesellschaften, http://www.bundesliga.de/de/dfl/fragen/35163.php (last visited at July 13, 2012), Detailed Analyses: Ryan Murphy, Note, Playing Fair in the Boardroom: An Examination of the Corporate Structures of European Football Clubs, 19 Mich. St. J. Int'l L. 409,413 (2011).

38 Murphy, supra note 37, at 424.

39 Id. at 427.

40 Id.

41 DFB Const. §16c.

42 DFB Const. §§ 7, 16; Ligaverband Const. §§ 3 Nr.1-4.

43 DFB Const. § 16a; Ligaverband Const. § 4 Nr.1a.

44 Ligaverband Const. §§ 4 Nr.1c-f, 17 Nr.2c.

45 Available at: http://www.bundesliga.de/media/native/dfl/ligastatut/lizenzierungsordnung_lo_05-12- 22_stand_.pdf (last visited at July 13, 2012).

46 DFL Const. § 4.

47 DFB Const. § 4.

48 FIFA Const. Art. I, § 2.

49 UEFA Const. Art. II, § 2.

50 Ligaverband Const. §§ 3 Nr.1-4.

51 Murphy, supra note 37, at 415.

52 Murphy, supra note 37, at 416.

53 Murphy, supra note 37, at 419.

54 Id.

55 Id.

56 Id.

57 Id.

58 Id.

59 Id.

60 Id.

61 In detail: Andrew S. Zimbalist, Competitive Balance in Sports Leagues: An Introduction, Journal of Sports Economics Vol 3, 111 - 121 (2002); Daniel Mizak et al., Assessing Alternative Competitive Balance Measures for Sports Leagues: A Theoretical Examination of Standard Deviations, Gini Coefficients, the Index of Dissimilarity, Economics Bulletin, Volume 12, 1-11 (2005); Joshua Utt and Rodney Fort , Pitfalls to Measuring Competitive Balance With Gini Coefficients, Journal of Sports Economics Vol 3, 367-373 (2003); Rodney Fort and Joel Maxcy, Competitive Balance in Sports Leagues: An Introduction - Comment, Journal of Sports Economics Vol 4, 154-160 (2003), Daniel Mizak et al., Assessing Alternative Competitive Balance Measures for Sports Leagues: A Theoretical Examination of Standard Deviations, Gini Coefficients, the Index of Dissimilarity, Economics Bulletin, Volume 12, 1-11 (2005).

62 Appendix, Chart 5.

63 Appendix, Chart 5.

64 Appendix, Chart 6.

65 Appendix, Chart 1.

66 Appendix, Chart 1.

67 Appendix, Chart 2.

68 Appendix, Chart 4.

69 Appendix, Chart 5.

70 Appendix, Chart 5,6.

71 Appendix, Chart 5,6.

72 Appendix, Chart 11.

73 Appendix, Chart 12.

74 Appendix, Chart 14.

75 Appendix, Chart 14,15.

76 Appendix, Chart 11.

77 Appendix, Chart 11.

78 Appendix, Chart 11.

79 Appendix, Chart 12 .

80 Appendix, Chart 12.

81 Detailed in: Stefan Szymanski, The Future of Football in Europe, Economia Deporte, 191, 200 (2007).

82 Appendix, Chart 1, 12.

83 Appendix, Chart 13.

84 Appendix, Chart 16.

85 Appendix, Chart 16.

86 Clay Moorhead, Revenue Sharing and the Salary Cap in the NFL: Perfecting the Balance Between NFL Socialism and Unrestrained Free-Trade, 8 Vand. J. Ent. & Tech. L. 641,644 (2006).

87 Jake I. Fisher, The NFL ’ s Current Business Model and the Potential 2011 Lockout, in: Professor Stanley Engerman, Economics 1630: The Economics of Sports and Entertainment 1, 4 (2010).

88 Stephen F. Ross and Benjamin Woodworth, More Like the United Nations Than McDonald ’ s: Economic and Policy Aspects of the NFL Labor Dispute, Penn State Institute for Sports Law, Policy and Research, 1, 3 (2010).

89 Fisher , supra note 87, at .4.

90 Id. at 5.

91 Charlie Zegers, Revenue Sharing and North America ’ s Major Pro Sports Leagues, http://basketball.about.com/od/nba-vs-nbapa/ss/Revenue-Sharing-And-North-Americas-Major-Pro-Sports- Leagues_2.htm (last visited at July 13, 2012).

92 MLB CBA, Art. XXIV A (10).

93 Id.

94 Id.

95 MLB CBA, Art. XXIII B (2).

96 MLB CBA, Art. XXIII B (2).

97 MLB CBA, Art. XXIII B (3).

98 John Lombardo, Inside NBA ’ s revenue sharing - How complex plan will shift $ 140 million to needy teams, January 23, 2012, http://www.sportsbusinessdaily.com/Journal/Issues/2012/01/23/Leagues-and-Governing- Bodies/NBA-revenue.aspx.

99 Id.

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Details

Title
Legal Requirements and Problems to Create a Financial Balance between Professional Sport Clubs in the German Bundesliga
Subtitle
Compared to the Major Leagues in the United States
College
Golden Gate University
Course
Sports Law
Grade
A-
Author
Year
2012
Pages
89
Catalog Number
V204957
ISBN (eBook)
9783656324140
ISBN (Book)
9783656331261
File size
1147 KB
Language
English
Tags
Sportrecht, Bundesliga, USA, Salary Cap, Financial Fair Play, Fussball
Quote paper
Max Randerath (Author), 2012, Legal Requirements and Problems to Create a Financial Balance between Professional Sport Clubs in the German Bundesliga, Munich, GRIN Verlag, https://www.grin.com/document/204957

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