Nov 04 2009

Liverpool versus Lyon, tradition versus “soccernomics”

Posted at 1:24 pm under England,Europe,France,Soccer Business

Karim Benzema, seen during his days with Olympique Lyonnais. The 21-year-old striker was sold to Real Madrid last summer for $35 million. (Wikipedia Commons)

Karim Benzema, seen during his days with Olympique Lyonnais. The 21-year-old striker was sold to Real Madrid last summer for €35 million. (Wikipedia Commons)

I’m something of a latecomer to following professional club soccer. Although I played the sport growing up in Western North Carolina and have watched every World Cup final since 1990, I’ve been oblivious to the comings and goings of the top European and South American leagues—mostly due to my typically spartan television habits.

That’s all changed. I now subscribe to Fox Soccer Channel, GolTV and Setanta, and tonight, I’ll skip Game 6 of the World Series in favor of DVR replays of Aston Villa-West Ham in their midweek Prem fixture and Lyon-Liverpool in Group E of the UEFA Champions League. If I’m still awake (perhaps after watching the ninth inning of the baseball game), I might zip through Barça-Rubin Kazan in Group F of the Champions League.

One reason I’m finding soccer so interesting is that, because of its global reach and the preponderance of international competitions and freely moving players, it seems more relevant and resonant than the traditional American sports. I love a good baseball or basketball game as much as the next person, but American sports leagues are closed shops, provincial and protectionist. No matter how bad the Pittsburgh Pirates or the Los Angeles Clippers become, for example, their place in their respective “major league” is assured.

There are virtues to the socialization of American sport. The leagues are well-organized and stable, and the owners (with the significant exception of baseball) have entered in agreements that share revenue and limit spending on player salaries. And, for those who think it’s important for teams to perform in an unpredictable fashion from year to year (“parity”), the NFL and NHL offer excellent models—one that Major League Soccer seems intent upon refining further.

Professor Dubois invited me to contribute to this blog, and I think my interests will largely be in the area of business and globalization. In light of today’s game between Lyon and Liverpool (2:45 p.m., broadcast live on Fox Soccer Channel), I want to draw attention to a just-published book, “Soccernomics,” by Simon Kuper and Stefan Szymanski. It’s a must-read for anyone interested in understanding the business—and the future—of the game, and I expect to return to it in future posts.

One section is especially interesting and timely. In a chapter devoted to examining why most soccer clubs lose money, there are a few appreciative pages focusing on the rise of Olympique Lyonnais (OL). After the authors argue—at length and convincingly—that the business of soccer is a poor one in theory and in practice, they visit with OL’s owner Jean-Michel Aulas in Lyon, France’s second-largest city, located in convenient proximity to the Alps, to Italy, to Paris, to the Riviera.

It turns out that OL, despite being in existence for a century, has generally been an indifferently performing club  in a bourgeois city more known for food, wine and cinema than for sporting enthusiasm. During Aulas’ two decades of ownership, however, Lyon has become the 12th wealthiest club in the world in 2008, according to the Deloitte Football Money League.

There are a number of reasons for OL’s success, Kuper and Szymanski argue, and most of them have to do with Aulas’ determination to run his team like a real business. Most top clubs, despite being described as “wealthy,” are actually saddled with debt in the hundreds of millions of dollars, pounds and Euros. Liverpool takes the field in Lyon this afternoon as the world’s second richest club, with income in 2007-8 of about €351.2 million—more than twice that of OL. (The others in the top five are, in order, Real Madrid, Manchester United, Barcelona and Bayern Munich.) But Liverpool also carries debt estimated earlier this year of £350 million, while Manchester United’s debt is close to £700 million. (Note the two different monetary units in this paragraph.)

As Kuper and Szymanski explain, there’s no danger that Liverpool and Manchester United and their fellow profligates will fold. But this reckless environment does leave room for an efficiently managed if rather bloodless club like Olympique Lyonnais.

While the authors write admiringly of Lyon’s branding of such things as OL Beaujolais, OL bottled water, OL hair salons and OL taxicab services, what is particularly pertinent in light of this afternoon’s clash is the French club’s strategy on the player transfer market. Every summer and winter, the soccer press is filled with talk of high-profile transfers, but as the “Soccernomics” authors argue, these players are almost always overvalued. Aulas and his team of soccer managers, however, never pay top dollar for an established star; instead, they sign prospects when they’re in their early 20s and then sell them a few years later the minute another club offers too much money for them. Hence, Michael Essien, Florent Malouda, Éric Abidal and Karim Benzema all became superstars in their early- to mid-20s playing for OL before they were sold for big bucks to Chelsea, Chelsea, Barcelona and Real Madrid, respectively.

Aulas boasts to the authors that he has a price on all his players, and that he anticipates big sales by having cheaper replacements for his stars at the ready. Liverpool, on the other hand, is an old-fashioned, badly run club that wins championships in spite of its owners (so desperate are the Liverpool supporters that they are attempting to form their own ownership bid—an effort supported by the British government but thus far unsuccessful).

Right now, the Scousers are in a terrible run of form, having lost six of their last seven matches in all competitions and suffering escalating calls for the sacking of gaffer Rafael Benitez. The principal reason for the team’s struggles, however, is the injuries to their two of their best and most expensive players, Steven Gerrard and Fernando Torres.

A third player, however, is also mentioned in the media’s diagnostic conversations about Liverpool’s struggles: midfielder Xabi Alonso, who was transferred to Real Madrid last summer for £30 million. “If only Liverpool hadn’t sold him,” their supporters—and players—moan. But, viewed through the prism of Lyon’s business strategy as depicted in “Soccernomics,” Liverpool and Alonso were correct to take Real Madrid’s money. Actuarially speaking, the 27-year-old Alonso is at the peak of his game and his marketability. Although he gave his best years to Liverpool, he will collect his biggest checks from Real Madrid.

Where Liverpool failed was in not making adequate preparations for Alonso’s departure and not preparing for the inevitable drop in production and susceptibility to injury of the 29-year-old Gerrard, whom Lyon likely would have sold a year or two ago.

So, this afternoon’s game is a battle between old and new. It’s also a must-win for visiting Liverpool, who will play without Gerrard and without a full-strength Torres—among other hobbled squad members. Lyon, meanwhile sits in first place in the Group with nine points from three games. A win will put them through to the knockout phase early next year.

It’s hard to believe that limping, debt-ridden, dysfunctional Liverpool could be a sentimental favorite. But then, it’s also hard to love a club like OL, whose owner describes his Champions League aspirations thusly:

Aulas says it is only a matter of time before [OL] wins the Champions League. “We know it will happen; we don’t know when it will happen. It’s a necessary step to achieve a growth in merchandising.” (Kuper and Szymanski, p. 67)

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