The broken business model: A flea-market frenzy of buying, selling PSL teams
By Siyabonga Hadebe
JOHANNESBURG – For the longest time, many people have observed that a strange relationship exists between the game of football and the basic principles of economics. The relationship is neither direct nor inverse but flies uncontrollably like a kite on a windy day.
As a result, it is quite complicated to understand and or to predict the commercial side of football for anyone concerned, including economists and sportswriters alike.
Hence, football is characterized to be following a ‘broken business model’. There are not even theories that can help one to explain football phenomena in a much easier language that is understandable to everyone.
Nevertheless, money flows in football keep on growing irrespective of what is happening to the global and local economies. The case in point here Argentinian clubs and the likes of DRC's TP Mazembe that continue to roll in cash irrespective of whether the countries are about to collapse or not.
Over the last few years, South Africa has also seen a surge in the sales of football clubs. Some of these transactions include owners of existing clubs especially in lower leagues acquiring the rights of clubs in top-flight football and relocations to the country’s remote areas. They also involve outright purchases of clubs in different leagues. A controversial Durban tycoon and tender-laden Mpisane family in 2019 bought two teams in the first division teams Uthongathi FC and Real Kings in an unexpected turn of events.
Perhaps the most notable transaction in the recent period is that of elite Bidvest Wits to Venda-based National First Division (NFD) side Tshakhuma Tsha Madzivhandila. This led to former player Matthew Booth to urge the Premier Soccer League’s board of governors “to rethink the selling of clubs' status.”
In spite of the concerns, Premier Soccer League (PSL) chairperson Irvin Khoza maintains that the league has no grounds to interfere in matters regarding the selling and buying of club statuses. Other clubs like AmaZulu (more than once), Mamelodi Sundowns, Bloemfontein Celtics, Highlands Park and Cape Town City have been affected by the sales in since the PSL came to being.
All in all, City Press journalist Daniel Mothowagae suggests that the transaction between Wits and Tshakhuma was the tenth club sale to have taken place in the PSL in the last four years. Adding the Highlands Park - Galaxy and AmaZulu commercial exchanges, this number rises to twelve. The recent transactions involving Wits, AmaZulu, Highlands Park, etc., however, raise eyebrows since the economy is almost on its knees.
Like elsewhere in the world, these transactions defy rules of economics as they go against the tide where large businesses have either downscaled or closed shop due to the difficult economic environment. Football does not follow the traditional boom-bust cycles in the economy. It is also no longer about culture or tradition as streams of money flow into the game for good and bad reasons. While the likes of Jomo Cosmos struggle to cope, others have forged ahead even without any knowledge of soccer.
Like in other parts of the world, tradition has been overtaken by the importance of the financial and media dimensions of the sport. And this is something that “good” and “bad” investors have tended exploit. These include large corporations, criminal gangs, felons, and others in a trend that gained prominence in the 1970s-1980s when Colombian and Italian football became a territory for “bad guys”.
South Africa football is not insulated from the happenings in the sport at a global level. In what journalist Sibusiso Mjikeliso calls “a flea market frenzy of selling and acquiring top tier teams”, there are more questions than answers as to why these transactions occur. Do they happen for business and football reasons? Or do other factors such as money laundering fuel these acquisitions?
Without any evidence, it is difficult to say what motivates individuals to buy clubs, but previous experiences, especially in places like Latin America and parts of Europe, have shown that football is culpable to movements in internal and cross-border criminal activities. Again, without proof, this article makes a daring assumption that the “flea market frenzy of selling and acquiring top tier teams” could be linked to the ongoing illicit financial transactions that dominate national media headlines, and even more. The activities of a deep state rear their ugly heads in sport without anyone noticing.
While the economics of football is a complex topic which includes foreign owners pumping billions into world’s top leagues and how they use their wealth to convert debt into equity to avoid stringent laws especially in Europe, this article does not go into the technicalities of the world of finance and its pros and cons. However, this opinion piece suggests that the recent transactions in South African football need to be scrutinized in lieu of the bad economic climate and how similar acquisitions in other parts of the world have tended to overlap with the underground world of corruption, money laundering, drug trade, etc.
Global competition in the world of sport is another factor that is often cited for allowing ‘money rain’ in football. As such, this has led to unprecedented concentrations in clubs, talent and money in the global economy, which is itself characterized by illicit financial flows, including tax avoidance, money laundering, cross-border crimes, and tax heavens.
Intersection between football and commercialism
In its report titled ‘Money Laundering through the Football Sector’ (July 2009), the Financial Action Task Force (FATF) contends, “criminals have shown adaptability in finding new channels to launder the proceeds of their illegal activities and sports is one of the many sectors that are at risk of being inflicted with criminal money.” This report identified different sporting codes including football, motor racing and basketball as vulnerable to take over by criminal economy.
Football is the world’s biggest sport in many countries and the world at large with no less than 38 million registered players and 5 million referees and officials as well as over 3.5 billion fans. In terms of money, the European football market revenue for the 2018/19 season was €28.9 billion. Locally, the recently announced DStv sponsorship is reportedly worth R600 million per season (R3 billion over five years).
Concerns about huge numbers in football compelled UEFA to impose Financial Fair Play (FFP) rules on European clubs. The FFP rules were introduced “to reckless and extravagant spending” in the game of football. Commenting on an online football publication Bleacher Report (16/05/2013), Max Towle argued, “The greed is inevitable—there are owners and officials in the game who have pushed the boundaries of economic decency to unparalleled levels.”
The rules were disguised as a way of ensuring the economic sustainability of clubs and the sport in terms of matching spending and incomes. But the authorities were just concerned about uncontrolled inflows that transformed the game of football overnight, and, of course, money laundering.
Oil money and other sources turned sleepy teams such as Chelsea and Manchester City into big contenders not just in the English premier league, but also in Europe. But big money to Spanish club Malaga and England’s Portsmouth resulted in their demise. AC Milan is said to be technically bankrupt with all its impressive history. New money has equalized the financial power of football giants like Arsenal, Barcelona, Bayern Munich, Liverpool, Juventus, Manchester United and Real Madrid.
Although these teams still lead in football stakes as clubs of choice for top stars, they are no longer invincible in terms of attracting talented players and paying good salaries. The case in point is the unprecedented USD 222 million amount that French but Qatari-owned Paris St Germain paid to acquire Brazilian star Neymar from Barcelona.
With all the shenanigans, teams such as Liverpool and Bayern Munich somehow maintain their position as elite clubs without the injections of new money seen at Chelsea, Malaga, and Manchester City. The German Bundesliga, for example, has done a phenomenal job to protect clubs from takeover by shady, greedy investors. The league’s 50 plus one rule stipulates, “clubs – and, by extension, the fans - hold a majority of their own voting rights.”
In simpler terms, the rules state that football clubs would not be permitted to play in the Bundesliga “if commercial investors have more than a 49 percent stake.” The only exceptions to the rule are only a handful of clubs including Hannover and Leipzig. That rule, in essence, has kept German clubs in their communities and limited inflows, not just in terms of club ownerships but also in exorbitant transfer fees for players. This is something that the PSL should consider going forward.
Soccer and the criminal economy
As already mentioned, experience from Latin America and Europe has opened a window into understanding how the infusion of illicit funds sustain football teams in the past decades. These include the involvement in football by Pablo Escobar, who was not only the head of the Medellín Cartel but also the most powerful drug lord in Colombia from the mid-1970s to the early 1990s.
The long dark love story between Italian football and the mafia is also a spectacle of trequartistas, anchor midfielders, box-to-box midfielder and flying wingbacks who expertly connect drug lords and football clubs. Generally, big clubs in countries such as Colombia, Argentina and Mexico have direct and remote links to the underworld.
This phenomenon of football and the criminal economy goes far beyond just drug cartels, but it goes deep into the intricacies of the deeper side of finance. It is therefore only fair to suggest that club sales in the PSL can be reasonably connected to the activities of a deep state in South Africa. The African National Congress (ANC) provincial executive committee meeting in September 2019 reportedly proposed an investment of as much as R30 million in public funds in acquiring a football team for the Northern Cape.
This implies that tender monies can be easily equated to the limitless wealth of the world’s narcos (or drug kings) in terms of combining illegal funds and popularity of soccer in the ideal money-laundering scheme. Of course, those behind buying a PSL soccer team for the Northern Cape would cite frivolous things like tourism and entertainment for the people.
In Colombia, for instance, many soccer clubs started to flounder without injections from narcos. Does it mean that most South African soccer teams could head towards disintegration and bankruptcy without the sources of cash that fuel the flea market frenzy in the PSL?
In an article titled ‘10 Ways Soccer and Organized Crime Mix in Latin America’ (2014) published in InSight Crime site, which chronicles how soccer and organize crime intersect, Geoffrey Ramsey identified ways soccer and organised crime mix in Latin America.
⦁First, drug kings or narcos become owners of professional soccer teams. For example, then-Colombian Justice Minister Rodrigo Lara Bonilla in 1983 released a list of six professional soccer teams in the country as being “in the hands of individuals linked to drug trafficking.” One such team was America de Cali allegedly received funds from drug trafficking networks, i.e. Cali’s Rodriguez Orejuela brothers. This attracted the attention of US authorities who added the team to its “Kingpin List” in 1999, and also froze the team’s assets in the States.
⦁Second, owners of professional soccer teams also become narcos. In January 2014, for example, Mexican authorities arrested the owner of the Queretaro professional soccer club, Tirso Martinez Sanchez, on grounds of dealing with drugs. Queretaro is the same team world superstar Ronaldinho Gaucho represented in a short stint in Mexico.
⦁Third, different news outlets across the globe including the Spanish newspaper El Mundo reported in 2013 that Lionel Messi, who is the father of star footballer Lionel Messi, was under investigation for his dealings with Colombian narco groups. The conduit for money laundering were charitable organizations, events, and match tickets. It was later reported that Lionel Messi was not involved in suspected criminal acts.
⦁Fourth, football fans become drug gangs as the game is turned into a street battle between thugs. Argentina’s “barras bravas” (fierce gangs or ultras) were found "to have been linked to drug dealing, and deadly conflicts occasionally break out among rival team gangs." These soccer mafias cause havoc in all aspects of the game from ticketing to money-related activities and are also hired to add muscle in violent demonstrations.
⦁Fifth, the narcos do not get involved in football as a great business opportunity but it is more about their publicity. For instance, Colombia’s largest guerrilla army, the Revolutionary Armed Forces of Colombia (FARC) organised football games in Cuba and Venezuela to promote themselves amid the peace negotiations with the government. Some world-renowned soccer personalities like Diego Maradona were invited to participate in these "friendly" games. One senior politician in 2019 took ex-footballers to his hometown, a dusty village in a remote province, for a friendly game to promote himself, or to at least spend his ill-gotten gains.
⦁Sixth, it is reported that Michoacan kingpin Wenceslao Alvarez may have purchased a B-list soccer team in eastern Mexico called The Mapaches de Nueva Italia. Alvarez was known to have close relations with one of the deadly cartels known as the Zetas, and drug cartels in Colombian fields and those in lucrative markets in Atlanta. Nonetheless, the team spoiled team members rotten with unusually high salaries drove luxury vehicles and received new uniforms for every game.
⦁Alvarez received public sympathies for being involved in sport. Not only that, the Mexican sports magazine El Grafico claimed that the drug king also formed numerous other teams and created soccer schools for children, providing them with shirts and shoes, all with drug money. Also, in South Africa, the involvement of politicians in football appears to fit this intention of swaying public opinion in one way or other. The rise of fallen Moroka Swallows and moderate rejuvenation of Bloemfontein Celtics are good examples of how politics (or maybe public funds) and football possibly intersect.
⦁Seventh and linked to the point above, players are not only showered with expensive goodies and unreasonably high pay, but they also become cash mules in the drug trafficking business. In this case, a player for the Mexican side Nexaca in 2003 was arrested at Mexico City's Juarez International Airport for being in possession of USD one million in cash. The player was deemed to have been a mule who had been given the cash by "strangers", and who also feared for his life.
⦁Eight, in an inexplicable case of criminality, in 2010 Paraguayan Salvador Cabañas, a former striker with Mexico’s Club America, was shot in the head while in a Mexico City bar in what was described as a manifestation of drug violence that gripped Mexico at the time. The police later claimed, they suspected the player may have been shot due to unresolved drug debts.
⦁Nine, officials and agents as emerge as global traffickers. For example, in what was termed ‘Operation Cyclone’ the Spanish police arrested eleven individuals “for allegedly using their ties to the sport as a cover for an international drug trafficking ring stretching from Argentina to Europe.” Spanish newspaper El Pais identified as a FIFA-licensed players’ agents such as Zoran Matijevic as the head of the ring and ex-player at Hercules Pedrag Stankovic as his associate. The ring was “accused of directly financing the purchase of at least 600 kilos of cocaine as part of the smuggling scheme.” Their actions embarrassed the global body. A former South African player in 2018 was alleged to have owned a drug-manufacturing barn, but the case was later struck off the roll.
⦁Finally, when teams move to the top, washing money becomes possible and much easier. Escobar reached unprecedented heights with Atletico Nacional and this enabled him to regularize his drug money as a chief financial contributor.
South African football and finance
The financial rules governing South African football is a mystery that only a few understand. This arguably leaves acres of space for encroachment by criminalistic elements. For example, the financial statements for clubs are not public and or available for anyone to scrutinize. Last year, the PSL announced a 'profit' of R1 billion which was generated through sponsorships rather than from operations.
Financial sustainability for clubs is also something that rarely gets attention. They seem to heavily rely on monthly windfalls from the league and sponsorships rather than from definable activities like gate-takings, sale of merchandise and other ordinary business dealings. Unfortunately, for smaller clubs do not attract any sponsorships. Then, the question arises: how do they fund team operations which can easily go up to R1 million in a single month?
With Wits moving to Limpopo and Highlands Park to ex-KwaNdebele, there is a concern on how these teams will sustain themselves as they already join a plethora of small, insignificant teams that fail to draw sizable crowds to their games. The character of the economy in Limpopo province, among others, heavily relies on the public sector economy with fewer industries.
So, the concentration of teams in the north of the country and 'remote' South Africa appears to make little or no sense. Besides salaries and other costs unique to large teams, most of the fixed costs like flights, maintenance and ground transportation are similar across teams. Income streams for the majority of teams are quite limited, and it is, therefore, necessary to understand how they remain going concerns.
The article has largely focused on the obvious, but football finance can be seriously complicated. Authorities may have to keep an eye on the DStv sponsorship of the top league, MTN sponsorship, GladAfrica’s association with first division and ongoing Spar involvement at AmaZulu. Large companies are known for ‘javelin throw’ and always deliver surprises. Some of these companies have been implicated in tender scandals, illicit financial flows to offshore tax havens, listings abroad, and possible flouting of King V rules by some of their directors.
Their dealings in football raise eyebrows and could be interesting cases should sweeping investigations on the sport be deemed necessary. It is unfortunate that the Hawks, Competition Commission, and the National Prosecuting Authority (NPA), as well as the world of investigative journalism, have generally turned a blind eye.
Escobar’s hot money changed the face of Colombian football when Atletico Nacional won the Copa Libertadores and attracted good foreign and local players with good players. Football in Colombia was not the same any longer. In this regard, “ticket sales, player salaries and lucrative broadcasting contracts all offered an easy way for his criminal empire to launder some of its massive profits.” South African football financiers possibly learned a thing or two from Escobar and other kingpins.
One day, football in South Africa will be embroiled in a massive scandal, you are forewarned!
Siya yi banga le economy!
Based in Pretoria, Siyabonga Hadebe is an independent commentator on socio-economics, politics and global matters.